Crain's Cleveland Business

Crain's Cleveland Business

November 14, 2011 issue

VOL. 32, NO. 1
$2.00/NOVEMBER 14 - 20, 2011
NEAR A BOTTOM?
Rising home sales suggest modest market rebound, yielding hope for real estate stakeholders
By STAN BULLARD sbullard@crain.com
R
achel Torchia, owner of Gateway Title Agency, said November "is usually one of the deadest months" at her Brecksville company, which handles residential real estate title transfers. That's because the approach of winter
and the looming holiday season take many prospective buyers' minds off the housing market. This year is different. "So far it's better than the last couple of years, except when we had the federal (new home buyer) tax credit," Mrs. Torchia said. "That kept
See HOUSING Page 37
Chamber groups ready to revive reform agenda
Changes in collective bargaining and education still sought after SB 5 rebuke
By JAY MILLER jmiller@crain.com
The voter rejection of state Issue 2 was a big disappointment for the state's major business groups. But they already are planning on which measures they will be pushing in the months ahead as the Republicandominated Legislature regroups. Education reform is likely to be at
the top of the list. "Our greatest priority still is teacher seniority and teacher accountability measures that we think are absolutely critical for the Cleveland school system and other school systems," Joe Roman, president of Greater Cleveland Partnership, said. "We were involved in (those issues) before they turned into Senate Bill 5 and
See REFORM Page 37
RENDERING PROVIDED
City to make splash with lakefront development plan
By JAY MILLER jmiller@crain.com
MARC GOLUB
Finally. The city of Cleveland will roll out today, Nov. 14, a sweeping downtown waterfront plan that Mayor Frank Jackson believes will alter the way people think about the city. The highlight of the Consolidated Downtown Waterfront Plan, as it's called, is a new, $50 million allweather pedestrian bridge to link downtown to the Lake Erie waterfront. The city already has applied for federal grant money to help build the bridge. The city also has plugged in a
spot for a waterfront hotel that, because of the new bridge, could serve visitors to the new convention center and medical merchandise mart. It could take 20 years or more to flesh out what basically is a broad concept for future development along nearly three miles of Lake Erie waterfront. Waterfront development has been anticipated for years, at least since Mayor Jane Campbell's 2004 lakefront plan whetted the appetite of citizens for access to the water. But the city sees the overall design and legislation it is presenting today to Cleveland City Council as creating
See LAKE Page 7
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NOVEMBER 14 - 20, 2011
COMING NEXT WEEK
Honoring region's brightest young leaders
Our Forty Under 40 section includes a twist this year: As part of our 20th annual installment, we catch up with a group of our Forty Under 40 alumni to gauge their recent activities.
BONUS ANTICIPATION BUILDS
Bonus checks might be a little bigger this year. A Robert Half survey of 1,250 senior executives found that 30% of executives whose companies awarded bonuses last year said they plan to give higher bonuses this time around. Human resources managers were most optimistic about increasing bonus levels in 2011 (42%), followed by technology executives, at 25%. Only 14% of all respondents expected smaller bonuses than in 2010. Here's how the executives described their expectations for bonuses this year:
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Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editors: Joel Hammond (jmhammond@crain.com) Sports Kathy Carr (kcarr@crain.com) Marketing and food Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Manufacturing Tim Magaw (tmagaw@crain.com) Health care & education Michelle Park (mpark@crain.com) Finance Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing/Events manager: Christian Hendricks (chendricks@crain.com) Marketing/Events Coordinator: Jessica Snyder (jdsnyder@crain.com) Advertising sales director: Mike Malley (mmalley@crain.com) Account executives: Adam Mandell (amandell@crain.com) Nicole Mastrangelo (nmastrangelo@crain.com) Dawn Donegan (ddonegan@crain.com) Gena Page (gpage@crain.com) Office coordinator: Toni Coleman (tcoleman@crain.com) Web/Print production director: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Lauren M. Rafferty (lrafferty@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com) Audience development manager: Erin Miller (emiller@crain.com)
Type of executive
Human resources Technology Accounting/finance Advertising/marketing Legal All respondents
Higher
42% 25 21 19 12 30
Lower
10% 18 17 13 4 14
No change
43% 53 60 53 73 53
Don't know
5% 4 2 15 11 3
REGULAR FEATURES
Big Issue ..........11 Classified ........38 Editorial ..........10 Going Places ....12 Milestones........39 The Week ........39
SOURCE: ROBERT HALF INTERNATIONAL; WWW.ROBERTHALF.COM
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Metro's building plan won't stop at one
Funds must be committed by 2013 as condition of bonds
By TIMOTHY MAGAW tmagaw@crain.com
Even as they eliminate hundreds of jobs to balance their operating budget this year and next, officials with the MetroHealth System are on the clock to build multiple satellite medical campuses as they look to
assure the future of the county-subsidized health system. MetroHealth CEO Mark Moran sees a planned $23 million health center in Middleburg Heights as a key component in the health system's quest to hang on to its market share and make inroads with new patients. But the investment won't
stop there, according to Mr. Moran, who said the recently announced suburban campus is the first of three, or potentially more, MetroHealth plans Moran to build in coming years. The investment would be financed with the proceeds from $75 million
in bonds that MetroHealth issued in January 2010 to finance future capital investments. But those bonds come with a catch. The bonds were issued through the Build America Bonds program, a nowdefunct federal stimulus initiative. Under terms of the program, MetroHealth has three years from the date of the bonds'
issuance -- or January 2013 -- to commit the funds to specific capital projects. Mr. Moran said he doesn't intend to let the money slip away and aggressively is planning for more outpatient locations. If MetroHealth doesn't commit the funds, the health system would be audited to determine whether it earned more investing the net proceeds of
See METRO Page 37
INSIGHT
Auction of Chase Tower loan creates intrigue
Location near casino could draw plentiful interest
By STAN BULLARD sbullard@crain.com
RUGGERO FATICA
Mike Ode (left) and his father, Fred, in front of the vault in the former bank they now use for Foundation Software's offices.
GROWING THEIR OWN
Foundation Software takes novel approach to avoiding the hiring blues by turning inexperienced staffers into programmers
By CHUCK SODER csoder@crain.com
An Internet auction slated to start tomorrow, Nov. 15, for the $13 million mortgage on the office portion of the former Chase Financial Tower at Tower City Center in Cleveland almost has as much drama as a gunfight in the Old West. Exactly who will show up for the auction adds mystery to this showdown. The building at 250 W. Huron Road is within rifle range of Cleveland's coming casino -- a location that could serve as a draw for bidders. The auction brings to light a loan dispute between the mortgage lender, J.P. Morgan Chase, and real estate giant Forest City Enterprises Inc., which developed the office space that serves as the four-story base for the eight-story Ritz-Carlton Hotel that thrusts skyward above it. The structure is one of seven Forest City developed at Tower City, an office-hotel-retail complex that also serves as the developer's corporate
CRAIN'S FILE PHOTO
headquarters. According to a listing on www .auction.com by Archetype Advisors, a commercial real estate loan-sale adviser in Miami Beach, the $13 million loan on the office portion of
See AUCTION Page 8
THE WEEK IN QUOTES
"The governor and the speaker are ... going to take a breather and recalibrate and see what we need to do next. ... If we do take up portions of SB 5, it certainly is not going to be something we take lightly."
-- Mike Dittoe, director of communications for Ohio House Speaker Bill Batchelder. Page One
H
WILL IT CATCH ON?
iring software developers is hard. That's why Fred Ode is hiring physics
majors. The CEO of Foundation Software Inc. in Brunswick has made it a point to hire smart people with little or no software development experience and to train them to become programmers.
The concept is a sharp departure from standard practices in the software business. Companies in Northeast Ohio and elsewhere almost never hire people to become software developers unless they already have learned to write code. Many area information technology executives, however, say it is extremely hard to find programmers with the skills they need.
See TRAINING Page 6
"Business is very good for us ... we chose not to participate in the economic downturn."
-- Jeff Schneid, Unistrut Service Co. of Ohio. Page 9
Foundation Software, based in Brunswick, is trying something new to solve the shortage of software programmers: hiring employees with no prior development experience, and providing them the necessary training. Will more companies follow suit? Stacy Sadar, the membership
chairwoman of the Society for Information Management, said because such training programs are scarce, more companies might not be willing to try it. "It seems like an awful lot of work to get what you want," Ms. Sadar said. Meanwhile, Brad Nellis, the
president of the Northeast Ohio Software Association, said the strategy might fit larger companies more than smaller ones, with one caveat: the shortage of software developers isn't getting any better. "You get desperate. You've just got to do something," he said. -- Chuck Soder
"A quality (mobile) application is going to cost in the tens of thousands of dollars. ... Get something out there, but start small and measure it."
-- Dan Young, principal, DXY Solutions LLC. Page 13
"Most businesses today, based on our standards, are small businesses. ... I think we say 98% of all businesses are small businesses."
-- Gil Goldberg, Cleveland District director, U.S. Small Business Administration. Page 13
4
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NOVEMBER 14 - 20, 2011
NE Ohio's manufacturing sector once again flexing its muscle
Report shows area's industry recovery expected to outpace nation
By DAN SHINGLER dshingler@crain.com
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It might seem like a rusty old car to some, but Northeast Ohio's manufacturing economy still has a pretty slick motor under the hood, and it's revving up the regional economy right now. Manufacturing, for once, is leading the nation's economic recovery. In Northeast Ohio, the sector not only is growing faster than others, researchers say, but it's also growing faster than manufacturing in the United States as a whole -- and will continue to do so over at least the next five years. So says Moody's Analytics, as highlighted in the latest quarterly economic report by nonprofit business retention organization Team NEO. According to that analysis, Northeast Ohio's manufacturing sector will grow by 27% from 2010 to 2015 in terms of total output. That's a much faster rate of growth than Moody's predicts for the nation as a whole, where it forecasts manufacturing output to climb by 17% over the same period. "We really think that (manufacturing) is what's driving our relative success," Team NEO chief executive Tom Waltermire said. By "relative success," Mr. Waltermire means the 18 counties in the northeast quadrant of Ohio are experiencing a lower unemployment rate than the nation as a whole -- about 8.5% here compared to 9% for the United States. Northeast Ohio gained 30,000 jobs between fall 2010 and fall 2011, Team NEO's research shows. About 8,000 of those jobs were in the manufacturing sector, which was more than the gains in any other sector, Mr. Waltermire said.
companies expressed such optimism. Ms. Kulek said it's hard to say definitively why optimism in Ohio was higher than the national average in both the summer and fall surveys by McGladrey, "but the companies that have made it through this last recession tend to be the companies that are the strongest," she noted. Also, companies that have invested in technology, made their workers more productive or have reorganized and repositioned themselves the best are the ones enjoying the most success, Ms. Kulek said -- and it's hard to imagine any region with more experience in reorganizing manufacturing companies than Rust Belt regions such as Northeast Ohio.
Corp. in Avon Lake. Though he's skeptical that rubber and plastics will grow as rapidly as Team NEO predicts -- because domestic demand and other market factors also will determine whether that happens -- Mr. Kedrowski said many feedstock suppliers to rubber and plastics producers now are gaining a cost advantage over their counterparts in other parts of the world due to shale gas. But, overall, economic conditions are improving -- and for nearly everyone, say economists and researchers.
Love that tune
For example, while beverage and tobacco might suffer a small setback, that's not true for food manufacturing generally, which Team NEO predicts will grow by 17% over the five-year period in its analysis. That growth likely will be driven by companies such as Shearer's Foods in Massillon. Shearer's employs 1,600 people in the United States and 1,100 in Northeast Ohio, said company co-founder and CEO Bob Shearer -- including 300 that it's hired here in the last two years. Companies such as Shearer's must look at a number of factors in determining where to operate -- from transportation and energy costs to the availability of local workers -- and "Northeast Ohio is a great place to manufacture," Mr. Shearer said. He no doubt believes it; the company opened a new 100,000-squarefoot plant in Massillon this year. All of this is music to the ears of Dan Berry, CEO of Cleveland-based manufacturing advocacy and consulting group Magnet. It's a tune with which Mr. Berry already is familiar, but which he is far from tired of hearing. "Team NEO's numbers confirm what we're seeing and hearing in many manufacturing sub-sectors," Mr. Berry said. "Production at many companies has almost recovered to pre-recession levels. And, as market conditions improve, many are beginning to grow again."
It's a gas
There also are various fundamental factors driving the success of local manufacturers, said Ned Hill, dean of the Levin College of Urban Affairs at Cleveland State University. Dr. Hill said a weakening dollar, relative to the euro, is boosting exports to Europe, while shale gas development is helping to sustain local equipment manufacturers and also is beginning to drive down costs for the plastics and chemical industries in which Northeast Ohio is a big participant. "I also expect that as the recovery gains traction, Europe willing, there will be a revival in car and light truck production and sales, which benefits Northeast Ohio through the automotive supply chain," Dr. Hill said. If Team NEO's research is right, the industries to which Dr. Hill refers will do better than most. For example, the research predicts the plastics and rubber industry in Northeast Ohio will increase its output by a healthy 48.6% from 2010 to 2015, while the smaller beverage and tobacco manufacturing sector will shrink slightly, by 3.8%. The plastics industry is seeing rapid changes in how and where its feedstocks are produced, said Thomas Kedrowski, senior vice president of supply chain operations at polymer producer PolyOne
The survey says ...
Team NEO's research is not the only source indicating that manufacturing is faring better here in the Rust Belt than in some sunnier parts of the nation. A recent poll by the Chicagobased tax, audit and accounting firm McGladrey found similar results, said Karen Kulek, head of the firm's national manufacturing and distribution practice. Each quarter the firm polls more than 600 U.S. manufacturing companies for their outlook on the economy and other factors affecting their business. About 35 of those companies are in Ohio, Ms. Kulek said, and recently they've been more optimistic than their counterparts nationally. "One of the main questions that we asked, that we've been asking for a long time, is, `What's the current condition of your business?'" Ms. Kulek said. "About 43% (nationally) said their businesses were either thriving or growing ... in Ohio, it was 52%." Likewise, when asked whether their sales would increase over the next 12 months, about 80% of those polled nationally said they expected an increase, while 88% of the Ohio
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5
Huntington bolsters size PE firm gets feet wet with deal of corporate banking team MCM sees potential
By MICHELLE PARK mpark@crain.com
Huntington Bank is gearing up to double its corporate banking team in Cleveland because it has seen its corporate lending grow and hopes to capitalize on big development projects here. Huntington recently made two additions to the team and plans to fill another eight high-level positions to bring its corporate banking staff to roughly 20, which, a spokesman noted, would be a new high. The corporate team handles loans and provides treasury management, capital markets and investment services to business clients with annual revenue of $15 million or more. Huntington has invested significantly in commercial banking across its regions, noted Jim Dunlap, regional and commercial banking director for Huntington, to whom 11 regions report, including Cleveland. The hiring in Cleveland is driven, in part, by corporate loan growth in recent linked quarters, said Dan Walsh, Cleveland region president. Though the Columbus-based bank does not disclose regional numbers, Mr. Dunlap said its corporate lending has grown footprint-wide for seven linked quarters. "I think that the Cleveland market seems a click or two ahead of what's happening nationally," Mr. Walsh said.
Huntington also is choosing to grow in Northeast Ohio because of current and planned infrastructure investments, Mr. Walsh said, citing the medical mart and casino in Cleveland. Opportunities exist to put capital into motion and to strike partnerships with companies involved in those investments, Mr. Dunlap said. "Cleveland is a very, very important market," Mr. Dunlap said. "You have to be vibrant and vital in Cleveland to be relevant in Ohio." The recent hires are Richard Pohle, who comes from KeyBank to be Huntington's senior vice president, commercial region manager, and Karen Davies, who comes from PNC to be Huntington's senior vice president, commercial team leader for the Cleveland region. The two bring a combined 46 years of experience in commercial and industrial lending. "The level of experience they have in the market has positioned us to take care of our more sophisticated corporate clients in the market," Mr. Walsh said. As for the investment involved in doubling a corporate team, Mr. Dunlap noted that a lot of the new employees' compensation is tied to variable components. "My bankers are highly incented to generate revenue streams that are sustainable," he said. "They're not as expensive as you would have historically thought."
with majority stake in water treatment outfit
By MICHELLE PARK mpark@crain.com
"I think this is going to be the most interesting ride."
� Harry B. Shimp, operating partner, MCM Capital Partners
product)," Mr. Mansour said of water treatment. "As water becomes a scarcer commodity, we think the company is very well-positioned to grow its business." MCM had searched for a handful of years to invest in a water treatment business, Mr. Mansour said. This is the first such company on which it successfully bid. "I think this is going to be the most interesting ride," said Mr. Shimp, who has led two other MCM Capital companies. "If you look at the opportunities from a macroeconomic basis in the world economy for the next 25 years, I think you'll see two that are dominant: energy and water. And we're in water. That's one thing that really excites me."
In what its executives call a rare move, MCM Capital Partners in Beachwood has become the majority owner of a company in its own backyard. Now, the private equity firm plans to double in five years the revenues of Zinkan Enterprises Inc., a specialty water treatment business in Twinsburg, said Harry B. Shimp, an MCM operating partner who now is CEO of Zinkan. MCM closed on its recapitalization of Zinkan on Oct. 31. Terms of the deal were not disclosed. Zinkan specializes in underground dust control and water treatment, said its founder, Jim Zinkan. Its newest division is water reclamation. MCM sees tremendous growth potential in water treatment, water reclamation and in the company's production of chemicals used in hydraulic fracturing, said Mark Mansour, managing partner. Hydraulic fracturing, known as "fracking," is a method of extracting oil and natural gas from deep shale formations. "It's a market that we feel will grow faster than GDP (gross domestic
Fighting giants
Work in water reclamation is one reason Zinkan sought a recapitalization for the first time since its founding in 1982, Mr. Zinkan said. A lack of depth in management is another, Mr. Zinkan added, noting that he turns 73 in December. "These are big jobs," he said of water reclamation work. "It takes a lot more resources to take that market segment on because you're competing against giants."
Zinkan, which operates distribution centers throughout the United States plus a Beijing office, employs about 50 people and has annual revenue nearly $30 million. It hired an additional four people in the field in the past couple months and plans to hire another four by the first quarter of 2012. Zinkan's growth has been strong and consistent, said Mr. Zinkan, who now is chairman of a new fiveperson board being formed. Mr. Shimp anticipates Zinkan will continue to grow for a number of reasons, among them the drive to reduce the level of particulate in mines, which requires dust control. In addition, the Chinese are becoming more interested in the health and safety of their coal mine workers, he said, and opportunity exists for Zinkan in the fracking boom, both in providing ingredients for drilling and treating fracking wastewater. Mr. Zinkan and his son, Brian, the company's chief financial officer, remain substantial minority owners, though their specific stakes were not disclosed. "With MCM Capital, the philosophy they have and the philosophy I have paralleled," Mr. Zinkan said. "They like to see something grow ... to let it grow." On average, MCM holds companies for more than six years, Mr. Shimp said. Its recapitalization of Zinkan wasn't financed by an official MCM fund, but by a group of MCM investors.
6
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Training: Initial test gauges aptitude
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Though a few members of the local IT community said some companies might be able to adopt Foundation's strategy, none of them embraced the idea without a few big caveats. Mr. Ode, however, said the strategy will work for Foundation, in part because it has worked once already. The company, which provides accounting software for the construction industry, three years ago rehired a former employee from its client services division and began training him to become a software developer. Today, Mr. Ode describes that employee as one of Foundation's best programmers, even though he has no programming experience other than a "very basic" introduction to programming course he took at DeVry University. The employee, who also took a database course at DeVry, studied engineering and economics at the University of Akron but did not earn a degree. Foundation went a step further a few months ago when it hired someone with zero software development experience with the intention of turning him into a developer. That employee, who has a bachelor's degree in physics, is working in Foundation's client services division for now, which is intended to help him learn about the company's product and its customers. Once he joins Foundation's development team, it should take him less than a year to become reasonably productive, Mr. Ode said. The employee earns a modest salary now but will make more as he improved, Mr. Ode added. Next year the company aims to train two or three more new hires to become developers. Thereafter, Mr.
"If you hire someone who's basically brilliant, it's not going to be that hard."
� Fred Ode, CEO, Foundation Software Inc.
Ode expects the number to increase, as long as the company keeps growing. "That two to three will probably grow to three, four or five the following year," he said. to remain with employers that provide them a lot of training, said Steven Ostrowski, director of corporate communications for CompTIA, of Downers Grove, Ill. "They feel a sense of being part of a team," he said.
An eye for raw talent
So why should Foundation -- which employs about 80 people, including about a dozen developers -- hire people with so little experience? For one, Mr. Ode said it is "almost impossible" for his company to find software developers. Beyond that, however, he noted that both new employees aced a test designed to assess their ability to solve problems. The company has a long history of valuing raw aptitude over experience, said Foundation president Mike Ode. He described how Fred Ode, his uncle, started trying to convince him to join the company back in the mid-1990s, even though they rarely had talked during the prior 10 years. But Fred Ode -- who himself took only three programming courses before getting a job in the software field -- had heard about his nephew's performance in school and his work ethic. "We are a company that looks for raw aptitude, talent and drive," Mike Ode said. Also key to Foundation's strategy is the company's extremely low turnover rate, which should help the company retain new hires long enough for the training to pay off. Only one employee has left the company so far this year, excluding two high school students who left for college, Fred Ode said. "When people fit our culture, they love it here. They stay," he said. The idea that a new hire might leave before the training has paid off might deter some companies from following Foundation's strategy, according to a few people who spoke with Crain's. However, the Computing Technology Industry Association, or CompTIA, has done a few studies that suggest employees are inclined
Not for everyone, but ...
After speaking with several area IT executives who belong to the Northeast Ohio chapter of the Society for Information Management, membership chairwoman Stacy Sadar said none of them knew of any area companies that train people with no coding experience to become software developers. Those executives didn't seem interested in implementing the concept themselves, said Ms. Sadar, who also is president of executive recruiting firm RSI-Best Group Management Consultants of Richfield. That might be because companies often don't have training programs needed to teach someone with no experience to develop software, she said. Plus, it might be easier for companies to find people who have at least some experience. "It seems like an awful lot of work to get what you want," Ms. Sadar said. While Fred Ode noted that the learning curve to become a programmer is "huge," he said it goes down dramatically if the new hire has excellent problem-solving skills. "If you hire someone who is basically brilliant, it's not going to be that hard," he said. Brad Nellis, president of the Northeast Ohio Software Association, said the concept might be of use to larger companies, but he said he's uncertain whether many smaller companies such as Foundation could afford the time and money it takes to train someone with no prior programming knowledge. Then again, he said, it is only getting harder to find software developers as the economy improves. "You get desperate. You've just got to do something," he said.
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7
Lake: Development will rely heavily on private investment
continued from PAGE 1
a clear roadmap for future city leaders and the business and development communities. "No longer is it a debate of whether we can develop the waterfront; this is what's next," the mayor told Crain's in a City Hall interview previewing the plan late last week. The plan covers 90 acres, at least 50 acres of which the city has set aside for private development. The rest is open for public promenades, bicycle and walking trails, marinas and other public uses. The plan maps out sites for more than 2.5 million square feet of office space or residential construction, as well as for several restaurants and parking space for several thousand cars.
Take that, critics
Mayor Jackson said he believes this plan answers the complaints of critics, especially critics in the business community, who say he does not have a vision for future development of the city. Now, he says, the ball is in the business and development community's court. "Everybody's always talking about what's the mayor's vision, what's the mayor's plan and why doesn't the mayor articulate his plan and why doesn't the mayor use the bully pulpit of his office to promote it," he said. "OK, here. Now, what are you going to do? This is what you asked for."
The mayor said he also believes the city's willingness to contribute to the financing of the Flats East Bank mixed-use project just west of the waterfront district will help boost lakefront development. He said it is an indication to developers that Cleveland can make their deals happen. The city put up nearly $53 million in loans and tax abatements for the $272 million office-hotel complex now under construction by the Wolstein Group and Fairmount Properties. Because the city anticipates the development along the lakefront of new, uniquely attractive office space in a weak market for downtown real estate, regional development director Chris Warren said the current downtown office district that runs east from Public Square likely will evolve into more of a mixed-use neighborhood where future development largely would be residential.
Step by step
The city legislation that will enable implementation of the plan includes an agreement with the Cleveland-Cuyahoga County Port Authority that would give the city control of several docks now used by the Port of Cleveland and gives the Port Authority new responsibilities for maintenance of the waterfront. At present, control of downtown
waterfront land is shared by the city and the maritime authority. The city believes that with complete site control it will be better able to market the waterfront to developers, Mr. Warren said. The locations of specific elements in the plan are the best guess of architects and designers. Also, city planners want the public to understand that time and changing commercial and recreational needs are likely to alter parts of the outline. "The goal is not to do it all at one time," said Ricky Smith, director of the city's Department of Port Control. "We will do a phased strategy that will rely heavily on private investment." The plan has been two years in the making. The city hired Ehrenkrantz Eckstut & Kuhn Architects of New York City and Van Auken Akins of Cleveland to bring together the city's 2004 waterfront plan and the Port Authority's nowdiscarded 2009 development plan, which also was created by EE&K, into a cohesive downtown waterfront plan.
Three-part harmony
The planners divided the lakefront into three development districts from west to east: Harbor West, North Coast Harbor and the Burke Development District. The Harbor West district basically is lifted from the Port Authority's plan. It features a promenade along
the waterfront and eight building pads that could accommodate 2.2 million square feet of office, retail and, perhaps, residential space. This is the same area that the Cleveland Browns have expressed an interest in developing. The city said last week in an email statement that it continues to work with the football team on its development interest and also is "evaluating interest in the lakefront among many potential developers and end-users, including the Cleveland Clinic." To the east is North Coast Harbor, which would be dominated by an all-weather promenade and an outdoor plaza. The promenade is where an all-weather pedestrian bridge would connect the Great Lakes Science Center and the Rock and Roll Hall of Fame and Museum to the under-construction convention center and medical mart. This area would include a marina and a drawbridge that already are financed and are on the drawing boards. The city earlier this year announced plans for a $2 million, 53-slip marina north of the Rock Hall. A $6.3 million drawbridge would connect Voinovich Park to the planned Harbor West District. Adjacent to the marina, what is now the East Ninth Street Pier, would be transformed into a festival pier with a building that might include restaurants and shops, a new parking structure and season-
al space for food trucks and other summertime amenities. Farther east is the Burke Development District. This area would be transformed into an office park that faces north onto a public park and a pier where floating office barges would be docked. The office park could include four new office buildings totaling 500,000 square feet. The barges would be similar to the one now docked adjacent to Burke Lakefront Airport that was the former home of Hornblower's restaurant. The barge currently is occupied by LeanDog, a software studio. The city also has mapped a reconfiguration of the East Shoreway south of the Burke district. As it did with the West Shoreway, the city plans to turn the freeway into a more accessible, crossable boulevard. One reason for adding more pedestrian crossings to the freeway is that the new waterfront plan sketches in some unspecified development in the current municipal parking lot that is across the Shoreway from Burke airport. Mr. Warren said before any changes begin in the parking lot, suitable alternative space for Cleveland Browns tailgaters will be found. The objective is to ensure public access to the waterfront. "We're very committed to making sure all the water edges are public promenades," said city planning director Bob Brown. "There is no privatization of the waterfront here."
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8
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NOVEMBER 14 - 20, 2011
Auction: Market's vacancy rate limits office property's attractiveness
continued from PAGE 3
the building was transferred to special servicing status in May 2010. That step was taken after banking giant Chase, which later became a tenant in the building it financed, terminated its lease and left vacant the 125,000-square-foot office portion of the property. Forest City had proposed a debt payoff for the loan, which allows a lender to secure repayment for a portion of a distressed loan if it gives the borrower a discount on the principal outstanding. "However, an agreement was not made," said the online ad, which trumpets an attention-fetching opening bid of $1.4 million. Forest City spokesman Jeff Linton
said going into default is "virtually the only way to get a lender's attention" on a loan like the one on the office space. He also noted that Forest City likes to acquire properties by buying notes at a discount or by negotiating note purchases at discounts for loans outstanding. Asked if Forest City might bid on the loan at this week's Internet auction, Mr. Linton declined comment. Another potential bidder is Cleveland Cavaliers co-owner Dan Gilbert, whose Rock Gaming is involved in a joint venture with Caesars Entertainment Corp. to bring casino gambling to Cleveland and Cincinnati.
A clue in a signature?
The casino interests confirmed
last April that they have an option to buy the Ritz-Carlton Hotel from Forest City. Jennifer Kulczycki, Rock Gaming spokeswoman, declined comment on whether the casino joint venture would bid on the mortgage for the office portion of the building. However, public records hint that Mr. Gilbert or Cleveland's casino interests may be preparing to take a shot at the loan -- or the property. A business called "250 Huron LLC" was formed Oct. 19, according to records in the Ohio Secretary of State's office. The signature of Janis K. Kujan, a paralegal at the Honigman Miller Schwartz and Cohn LLP law firm of Bloomfield Hills, Mich., appears on that document as well
as on state records for Rock Gaming Cleveland LLC -- Mr. Gilbert's gaming concern -- and for the casino joint venture. Rock Gaming's Ms. Kulczycki declined comment on the significance of Ms. Kujan's signature on the 250 Huron LLC document. Ms. Kujan did not return a phone call last week. Jonathan Russo, Archetype Advisors' agent for the auction, declined to discuss the mortgage offering or the loan negotiations. Forest City tried marketing the property in 2008 after Chase shut its offices in the structure and consolidated in smaller offices in Post Office Plaza, a Tower City property that is across West Third
Street from the former Chase building. However, it took the property off the market a year ago because of the loan workout efforts, according to a source familiar with the situation who asked not to be identified. Alex Jelepis, a Grubb & Ellis Co. senior vice president who specializes in office space, said the 250 West Huron space was priced competitively for lease but is "view impaired" because it consists of the first four floors while the Ritz has superior views.
Will they, or won't they?
Whether someone would want to own the mortgage -- and perhaps the 20-year-old office building through foreclosure -- in an office market with 22% vacancy is another question. Even for longtime Forest City watcher Rich Moore, an analyst at RBS Capital Markets, whether Forest City would bid on the mortgage on its own property is debatable. "Right now all the real estate companies seem to love the idea of buying debt cheap. It's a way to hold debt on a property they might like," Mr. Moore said. "Forest City would do those kinds of investments. However, I don't think they would argue that buying Cleveland real estate is what they're about today. They are more about their developments in New York City and L.A. than Cleveland. At the same time, no one knows more about the asset than Forest City. If they have a chance to buy it cheap, why not?" As for whether the distressed loan means anything to the billion-dollar developer's fiscal health, Mr. Moore answers quickly: "Heavens no."
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Eaton, U.S. Coast Guard sign $20M pact
Diversified manufacturer Eaton Corp. said it has been awarded an engineering services contract from the U.S. Coast Guard valued at about $20 million. Under the contract, Eaton will provide electrical infrastructure preventive maintenance services, including circuit breaker retrofits and replacements, and power service inspection and testing for up to 12 Coast Guard cutter vessels in San Diego, Seattle, San Francisco and Hawaii. A cutter is classified as any Coast Guard vessel 65 feet in length or greater and with adequate accommodations for crew to live on board. "This is a great opportunity for Eaton to support the Coast Guard through our operational maintenance expertise," Ken Narod, director of Eaton's Government Sales and Solutions unit, said in a statement. "Our team of certified engineers and expertise in electrical power management will help the Coast Guard keep its vessels running safely and efficiently while increasing load carrying capacity, and providing system protection and monitoring." Eaton will be commissioned for up to five and a half years.
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CRAIN'S CLEVELAND BUSINESS
9
Westlake hospital contractor unfazed by slump
Unistrut benefits from increasing demand for its suspension systems
By DAN SHINGLER dshingler@crain.com
UPCOMING EVENTS
Forty Under 40
Crain's next Monday, Nov. 21, will publish its annual Forty Under 40 section, highlighting a group of Northeast Ohio business leaders under the age of 40. We'll also catch up with a group of our Forty Under 40 alumni, as this year marks the newspaper's 20th edition of the section. You can be part of the celebration next Monday, too, by attending our annual Forty Under 40 awards ceremony, being held this year at Executive Caterers at Landerhaven in Mayfield Heights. For more information and to register for the event, visit www.CrainsCleveland .com/marketing/forty.html.
Handling weighty matters
Most of Makovich & Pusti's work is for hospital and health care projects, and Unistrut Service Co. of Ohio almost always is chosen to supply the suspension systems, Mr. Makovich said. He said he isn't surprised the supplier is doing well, even if the construction industry as a whole is in a slump. "You have to recognize that for what they do, they're the absolute best," Mr. Makovich said. "They've done so much, so long, for so many -- they've seen virtually every condition that could exist." Other factors also are affecting demand for Unistrut's products, according to Mr. Makovich. He said as health care technology continues to advance, more equipment is developed that needs to be suspended from hospital ceilings. Mr. Makovich said the market for the suspension systems also is growing because patients are growing bigger. As more patients weigh 300, 400 or even 500 pounds, hospitals must find ways to move them. Many are installing patient lifting systems in their rooms, and those systems are secured to a Unistrut frame, Mr. Makovich said.
As long as people get old, fat and sick, Jeff Schneid probably is going to be successful. You see, Mr. Schneid sells construction supplies, and while that business isn't booming generally, the segment he serves is in growth mode. His Westlake company, Unistrut Service Co. of Ohio, sells steel support systems that go into hospitals. Hidden above the visible ceilings, Unistrut's systems are what hold up the monitors, X-ray machines and lab equipment -- plus, in some cases, people -- that are suspended from hospital ceilings. "It's kind of like a grown man's Erector Set," Mr. Schneid says, describing the long and short pieces of steel framing that are designed, made and cut so that they can be assembled like kits at hospital construction sites. The company is doing well, Mr. Schneid said, because the region in and around Cleveland where he sells most of his product still is experiencing a boom in health care
construction. "Business is very good for us, Mr. Schneid said. "We chose not to participate in the economic downturn." Mr. Schneid bought the company in 2007, along with a sister company called Diversified Fall Protection, which sells products to ensure that workers don't fall from heights while working at factories and construction sites or in other highrisk settings. That business is growing, too, he said, largely as a result of capital investments by companies in new plants but also because of more emphasis on safety generally and increased marketing by the company itself. Mr. Schneid said the two companies are growing so fast that their combined revenues already have doubled since he bought them, to an expected $7 million in revenues this year. He's also more than doubled his payroll -- from 12 employees in 2007 to 27 today -- and still is looking for at least three new people. Not bad for a guy who doesn't have a proprietary product. Mr. Schneid's company doesn't
"For what (Unistrut does), they're the absolute best. They've done so much, so long, for so many -- they've seen virtually every condition that could exist."
� Ron Makovich, architect, Makovich & Pusti Architects
make the Unistrut systems it sells, though it does what most would consider light manufacturing work in tailoring the systems for each customer. The systems' components are made by Unistrut in Harvey, Ill., for which Mr. Schneid's company is an affiliated but independent reseller. He can sell anywhere in the country, as can other Unistrut dealers. But Mr. Schneid said he has a pretty good lock on Northeast Ohio. That's because when he acquired Unistrut Service Co. of Ohio, he also got the company's staff and its decades of experience in working on hospital projects in the area, said Ron Makovich, an architect with Makovich & Pusti Architects in Berea.
Ideas at Dawn business breakfast series
Crain's breakfast series will wrap up on Wednesday, Dec. 7, with a panel discussion on best practices for hiring top talent. For more information on the event, including online registration information, visit www.Crains Cleveland.com/breakfast.
BRIGHT SPOTS
Bright Spots is a periodic feature in Crain's highlight positive business developments in Northeast Ohio. To submit information, email managing editor Scott Suttell at ssuttell@crain.com.
PartnerShip LLC, a subsidiary of the Oberlin-based National Association of College Stores, has moved to a new headquarters building in Westlake to accommodate the steady growth the company is seeing in its business. The freight management company provides shipping services to small and midsize businesses nationwide. It has 39 employees. John J. Finucane, PartnerShip's president and chief operating officer, said in a statement that the move to a 5-year-old building at 29077 Clemens Road "will help meet our growing workspace needs for years to come." The 15,000-square-foot building has room for 80 to 90 employees, according to PartnerShip. Mr. Finucane said demand for the company's freight management services, which help customers reduce their overall shipping costs, "has increased steadily over the past four years, necessitating a near doubling of its employee headcount during that same timeframe." The company's business plan calls for continued growth that will require employing a total of 60 to 80 people within five years. Last year, PartnerShip opened a West Coast sales office in Irvine, Calif. Four employees are based there. The University Park Alliance, a nonprofit community development corporation dedicated to transforming a 50-block neighborhood around the University of Akron, has launched a business plan competition for entrepreneurs interested in locating a business in University Park. The goal of the Start UP! Business Plan Competition "is to help attract and assist new business, especially business providing basic but missing services in the University Park neighborhood, and to give aspiring entrepreneurs the opportunity to bolster their business acumen," according to a statement from the group. Interested entrepreneurs can begin the process by submitting an initial application, found at www.upakron .com/university-park-business-plancompetition, by Dec. 8. Finalists will attend a mandatory orientation session that will describe opportunities in the University Park neighborhood. At that session, finalists will receive feedback on their applications and guidance from successful Northeast Ohio entrepreneurs and from the Student Venture Fund at the University of Akron (SVFUA). Those selected to continue will receive from the University of Akron Research Foundation and SVFUA guidance on writing a business plan and developing a strong business pitch. In spring 2012, finalists will present their plans to a panel of judges to determine the contest's winners. Those submitting winning business plans will receive up to $10,000 and assistance locating a site within University Park. Climax Metal Products Co., a maker of shaft collars, rigid couplings, keyless locking devices, bearings, abrasives and pulleys, has moved its corporate headquarters to Mentor. The company, which employs 65, has renovated a 50,000-square-foot space at 8141 Tyler Blvd. The building formerly was occupied by Aquamarine Inc. "This new facility allows us to house our offices, shipping department, finished inventory and machining all under one roof," said Jerry Wheaton, owner and CEO of Climax Metal, in a statement.
Wednesday, December 7 7:00 - 8:00 a.m. � Breakfast and Networking 8:00 - 9:30 a.m. � Panel Discussion The Ritz-Carlton, Cleveland
Attracting top talent can be an organization's toughest challenge. Do you have the right workforce in place to adapt and thrive in today's high-pressure climate?
www.CrainsCleveland.com/Breakfast
10
CRAIN'S CLEVELAND BUSINESS
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NOVEMBER 14 - 20, 2011
PUBLISHER/EDITORIAL DIRECTOR:
Brian D. Tucker (btucker@crain.com)
EDITOR:
Mark Dodosh (mdodosh@crain.com)
MANAGING EDITOR:
Scott Suttell (ssuttell@crain.com)
OPINION
Humble pie
O
ne of our favorite quotes is from Clint Hurdle, a former Major League baseball player who now is manager of the Pittsburgh Pirates. It goes like this: "There are two types of player in this game -- those that are humble, and those that will be humbled." Last Tuesday, Gov. John Kasich and his Republican cohorts in the Legislature had an entire humble pie shoved down their throats as Ohioans defeated Issue 2, a referendum on the collective bargaining bill the Republican had put into law last March. It wasn't even a contest, as more than 61% of voters said "no" to Issue 2, for a margin of defeat of nearly 800,000 votes. Gov. Kasich sounded appropriately chastened the evening of the election, the outcome of which quickly became clear. "It requires me to take a deep breath and to spend some time to reflect on what happened here," the governor said. It shouldn't take too long. Ohio Republicans were arrogant in their use of power. They were overconfident and shortsighted, too. The arrogance came in creating a bill that went well beyond the governor's stated intention of helping local governments and school districts hold down their costs by limiting the extent to which health care and pension benefits are subject to negotiation under collective bargaining agreements. The overconfidence was evident in passing a souped-up, anti-labor bill despite tremendous opposition from public employees and their union leaders, the latter of whom made no secret that they'd take out petitions to overturn SB 5 in a referendum if it was signed into law. As for shortsightedness, the Republicans were like bad chess players; they made a move with little consideration for how their opponents would counter it. They should have expected the unions not only to rally the troops to vote against the measure, but also to pour tons of money into advertising to convince other voters to align with their cause. And they did -- by most estimates, to the tune of $25 million. They were shortsighted, too, in failing to recognize that a sound repudiation of SB 5 could jeopardize their ability to lead over the next year and beyond. Less than 12 months after gaining political advantage to set the state agenda, Republicans in Columbus find themselves on the defensive. They've succeeded in energizing Democrats and their union allies as they head into 2012 with elections for seats in the Ohio House and Senate on the horizon. They also may have blown an opportunity to take pressure off cities and school districts when they're negotiating contracts with their unionized employees. We've got to wonder just how eager Republican lawmakers up for re-election will be to put forth a less-ambitious version of a collective bargaining bill after the sound thrashing of SB 5. It's a sorry outcome for Gov. Kasich & Co., especially because it didn't need to be this way. Now, they're eating humble pie, while the state starves for change.
FROM THE PUBLISHER
Please, tell us what you really think
Of course, we now realize most of the fter more than three decades in state's voters felt the same way, irrespecthis business, I like to think I tive of their party affiliation. Now the understand the emotion of our GOP will come back and try to institute critics and the disagreement legislative reforms that Ohioans do supthat column writing can stir among port, like requiring state workers to pay some readers. more of their health care and pension Then along comes a scathing, obscenitycosts. That's change we could support, laced, one-line e-mail that gets even and when we do, it probably my attention. Apparently upset will anger someone from the over Crain's suggesting that BRIAN other side. Oh, well ... Ohio Republican lawmakers TUCKER overreached with Senate Bill 5 **** WITH THANKSGIVINGbearing -- thus leading to its resounding down on us, thoughts turn to election defeat last week -- the the entire holiday season and writer's most printable word (not its importance to business. that it is a word) was "libtard." On that theme, I offer a I presume this deep thinker thought from an email sent was hurling an epithet from the from a friend in Chicago who's far right, using a term I hadn't on a campaign to boost sales of heard or read yet. My, how the locally produced goods and services. He extremists can react when they don't get and his wife, who run a business with their way. Clearly, this person, who used offices here and in the Windy City, are a name I don't believe is real, was angry immigrants, part of that creative class of that we took the position that Ohio's which every city in America wants more. GOP majority that swept into office last And the email, created by someone year went too far in passing a law with else, had great suggestions on holiday such harsh reforms aimed at the state's gift-giving: public employees.
A
"It's time to think outside the box, people! Who says a gift needs to fit in a shirt box, wrapped in Chinese-produced wrapping paper?" It went on to make very interesting suggestions of gift-giving that would help local businesses owned and staffed by Americans, such as gift certificates to restaurants or hair salons. Or a computer tune-up from a local whiz kid trying to help pay college costs. Or a car detailing at a local body shop. "You see, Christmas is no longer about draining American pockets so that China can build another glittering city," the email author wrote. "Christmas is now about caring about the U.S., encouraging American small businesses to keep plugging away to follow their dreams. "And when we care about other Americans, we care about our communities, and the benefits come back to us in ways we couldn't imagine." While it's logical to cut corners in such trying economic times, wouldn't you feel good by buying holiday gifts and services from local businesses, knowing that by doing so you help the entire country lift itself past this "jobless recovery"?
PERSONAL VIEW
Tech advances help banks develop bonds
By SID GOOD
E
ach generation seems to reflect a different relationship with its banks. As an aging Baby Boomer, I love the convenience of ATMs to handle a majority of my banking needs, and I appreciate the value of accessing my accounts online. And while there are many in our parents' and grandparents' generation who still actually go inside a bank to conduct their business, younger generations have been forging a new banking relationship dynamic that few banks have noticed or leveraged most effectively. First and foremost, consumers are no longer geographically dependent on their local banks. Depending on priorities for products and services, potential bank customers can simply access the
Mr. Good is president of Good Marketing Inc., a product development agency in Cleveland that develops ideas for children's products. Internet, identify what banks offer the best options for what is most important to that individual or family, and proceed to forge a relationship with that institution. Since geography no longer plays a significant role in this decision, the opportunity for a long-term relationship between a bank and its customers is substantial since there is no longer the need to switch banks when moving to a different location. In addition, the opportunity for banks is that they are no longer specifically dependent on consumers who fall within their geographic footprints since they can now reach out to consumers
who can access their banking services online. Amazingly, though, very few banks offer any substantial outreach to younger consumers until they are college age, well past the time when banking services are needed. In light of this phenomenon, banks need to better leverage -- albeit with parent engagement -- the 10- to 19-yearold market. They are just beginning to become more engaged with personal finance issues and are most at risk if good personal finance habits are not established early. With over $200 billion in collective spending power, this age group is in desperate need of learning the basics of personal finance, savings, investments, budgeting and other money management issues.
See VIEW Page 11
NOVEMBER 14 - 20, 2011
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CRAIN'S CLEVELAND BUSINESS
11
THE BIG ISSUE
Over the past 25 years, the net worth of older adults has risen significantly while the net worth of younger adults has dropped, according to the Pew Research Center. What might explain this trend?
Report shows hiring by small businesses lagging
28% of respondents indicate reduced staffing
The October Small Business Employment Index issued by CBiz Payroll Services indicates hiring among smaller companies remains lethargic. The unit of accounting and business services provider CBiz Inc. said its barometer for hiring trends among companies with 300 or fewer employees declined by 1.28% last month after posting a decrease of 0.81% in September. The CBiz announcement followed ADP's October jobs survey, which indicated that the private sector added 114,000 jobs in October. However, that number was down from a hiring increase of 122,000 new jobs recorded in September. Philip Noftsinger, business unit president for CBiz Payroll Services, said the latest results "show a steeper decline than in September, indicating that job growth at the small business level is still struggling." CBiz said of the companies that were surveyed, 28% reported a decrease in employee headcount while 22% increased staffing. Half the companies responding to the survey maintained their number of employees. "With consumer spending likely to heighten during the holiday season, it could accelerate economic activity and confidence," CBiz stated. "A pickup in consumer spending could help to propel the economy forward and increase employer sentiment when it comes to hiring." Mr. Noftsinger said many employers that are facing a year-end calendar "may be opting to slow the replacement process for positions opened due to voluntary attrition in an effort to boost net income." "We should see some stabilization to the numbers as we move into the holiday season and hope for job growth during that period as well," Mr. Noftsinger said.
REBECCA RANALLO
Bay Village
"Maybe people don't save the same way. I also think there are more things you expect to have now. ... My grandparents owned their own home, but they didn't have as many possessions."
ELAINE DURDEN
Cleveland
"Young people, they don't take care of themselves as much. ...(Older) people had their own gardens, they had fresh produce. Now people are eating fast food."
JEFF KREZEVICH
Painesville
"Older people 25 years ago would graduate high school and get a job at a factory and be safe at the factory for 25 or 30 years and retire. ... (Younger people) don't have the same opportunities. Younger people today are going to be jumping around from job to job before they find their niche."
JAMIE PEACOCK
Cleveland
"I think everybody's worried about spending their money ... on frivolous things right now without thinking of the future. That's what separates our generation from the generation of our grandparents and even my parents."
Watch more of these responses by visiting the Multimedia section at www.CrainsCleveland.com.
IT pros content, expect raises in 2012
By STAFFING INDUSTRY ANALYSTS
Eighty-nine percent of information technology professionals said they are happy in their current positions and 64% plan to stay with their current employer, according to a survey released last week by Modis, an IT staffing division of Adecco Group North America. In addition, 44% of all IT professionals expect a raise next year.
"These results are consistent with what we are seeing and hearing on a day-to-day basis at Modis," said Modis president Jack Cullen. "IT professionals are generally happy in their current roles and are cautiously optimistic about what 2012 may bring." Meanwhile, 65% of IT professionals believe their IT team will stay the same size in 2012, while 28% expect their teams to increase
headcount either marginally or significantly. More than a third (35%) of IT professionals said networking with other IT people is the most effective way to land an IT job. However, only 8% said social media tools such as LinkedIn, Facebook and Twitter are most effective for landing an IT job. The survey included telephone interviews of 502 IT professionals from Oct. 7 to Oct. 14.
View: Engagement benefits banks
continued from PAGE 10
Join us December 7, 2011
Even though a significant number of teens might already have savings accounts, write checks or have debit cards in their own name, most teens know little about personal finance and investing basics. The good news is that, more often than not, they would like to learn more. Even among major banks, if you compare website homepages, there is little that differentiates one bank brand from the other. And there is even less that identifies how the featured products or services are relevant for younger consumers. The few exceptions seem to be the banks that have begun to offer banking apps as a convenience for all customers. With the capabilities of Internet banking and other social media platforms, banks now have the opportunity to nurture relationships with younger consumers and make them customers for life. Few banks, however, have ever reached out to actually talk to younger consumers to determine what they want, what is most important about any banking relationship, and how to make bank products and services more compelling to this age group. It is, obviously, a moving target -- one that will definitely change over time. But the key is to be there front and center when the need occurs and the benefit can be provided. We all save for different things at different times of our lives (i.e., cars,
college, homes, etc.). And we all save for the same things throughout our lives (i.e., retirement, health care, etc.). Consumers need to know that banks are there for them at every stage of the process -- a constant and consistent resource and partner for all financial needs. It is not one size fits all. It is dynamic and always unique to every individual. Banks just need to learn how to best deliver on this option. It is done in the world of private banking. It just needs to be replicated in the mass market for younger consumers on up. Fortunately, the dynamics of the Internet and other social media options make it achievable. In this current economy, we expect our elected officials to be more fiscally responsible. We certainly require that of our families and ourselves. Banks that choose to work in partnership with their customer base -- at all age levels -- to achieve that goal will definitely benefit from the investment. However, the earlier banks start to reach out to potential customers, the longer and more substantial that relationship will be. Tweens and teens, and their parents, will especially respond to relevant, engaging programs just for them. The result is long-term, loyal customers and ongoing, innovative growth. The only question that remains is, "What new banking dynamic will be possible and necessary to appeal to the next generation of bank consumers?"
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CRAIN'S CLEVELAND BUSINESS
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NOVEMBER 14 - 20, 2011
GOING PLACES
JOB CHANGES
CONSTRUCTION
WELTY BUILDING CO.: Alan Pollack to president, Welty Cleveland Group. officers.
HEALTH CARE
METROHEALTH: Dr. Sobia Hassan to Department of Rheumatology; Dr. Hari Prasad Kunhi Veedu to Department of Neurology. SUMMA HEALTH SYSTEM: Dr. Gus Kious to president, Summa Physicians Inc.
Reagh Fishback Hassan
FINANCE
FEDERAL RESERVE BANK OF CLEVELAND: Gregory L. Stefani to first vice president, COO. FIRSTMERIT CORP.: Jonathan H. Barko to vice president, commercial credit services. KEYBANK: Rodney Drake to vice president and program coordinator, Plus program. OHIO COMMERCE BANK: A. James Totin to vice president, commercial lender.
INSURANCE
WELLS FARGO INSURANCE SERVICES USA INC.: Richard S. Oleksyk to senior vice president; John W. Grabner to sales executive; Pamela Fleischer and Jenna Schmidt to account executives.
Kunhi Veedu Mull McCann
LEGAL
BENESCH: W. Clifford Mull to associate. BROUSE MCDOWELL: Christopher M. Huryn to partner. CALFEE, HALTER & GRISWOLD LLP: Jenny L. Sheaffer to partner; Mona Ma and Lindsey Sacher to associates. JAVITCH, BLOCK & RATHBONE: William M. McCann and Nevenka Pavlovic to partners. TAFT STETTINIUS & HOLLISTER LLP: H. William Beseth III to associate.
Samuels Fri Privett Pavlovic Beseth Chom
FINANCIAL SERVICE
CIUNI & PANICHI INC.: Tony Constantine and Jeremy Harrison to senior managers; Frank Eich to manager; Kathleen Drescher, Greg Henderson and Jake Roelen to senior accountants; John Ricchiuto to staff accountant. MCMANUS, DOSEN & CO.: David M. Wehner to senior accountant. WELLS FARGO ADVISORS: Stephen Reagh and Gary Fishback to senior vice presidents, investment
MANUFACTURING
Insights from a business owner
FAIRMOUNT MINERALS LTD.: Christopher L. Nagel to chief financial officer; David J. Crandall to vice president, general counsel; Reginald L. Stover to vice president, people and talent development. ROGERS CO.: Erin Chom to marketing specialist.
Gretchen Fri to senior public relations manager; Terri Privett to senior director, accounting administration. WESTERN RESERVE PLUMBING: Chris Sprague to service manager.
TECHNOLOGY
BOUNDARY SYSTEMS INC.: Mike Kanczak to director of sales; Wade Moravek to director of engineering; John Steinbrenner to controller.
MARKETING
LIGGETT STASHOWER: Mark Szczepanik to creative director; Linda Fantone to art director; Charlene Coughlin to senior project manager; Doug Herberich to senior art director; Larry Peacock to account director; Angelina Broderick to project manager; Emily Tarr to account coordinator.
TRANSPORTATION
GREAT LAKES TOWING CO.: John McClure to quality, safety and environmental manager and Troy Williams to new construction manager, Great Lakes Shipyard.
BOARDS
CUYAHOGA COUNTY LAND REUTILIZATION CORP.: Tony Brancatelli (City of Cleveland) to chairman; Dan Brady to vice chairman.
NONPROFIT
CLEVELAND COUNCIL ON WORLD AFFAIRS: Ambassador Heather Hodges to president and ambassador in residence.
"I'm six-foot-five and even I felt like the phone company l o o k e d d o w n o n m e . S w i t c h i n g t o C o x c h a n g e d t h a t ."
CLEVELAND RAPE CRISIS CENTER: Katie Hanna to statewide director, Ohio Alliance to End Sexual Violence.
AWARDS
CLEVELAND INSTITUTE OF ART: Peter van Dijk and Cris Rom received the Medal of Excellence. SOCIETY OF WOMEN ENGINEERS: Mary Verstraete (University of Akron) received the Outstanding Faculty Adviser Award.
REAL ESTATE
GUGGENHEIM INC.: James A. Samuels to senior vice president, Commercial Real Estate Group.
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NOVEMBER 14 - 20, 2011
CRAIN'S CLEVELAND BUSINESS
13
INSIDE
15 ADVISER:
FIRMS MUST FOSTER MOBILE WORK FORCE.
SMALL BUSINESS
Definition of a small business arbitrary
Wide range of standards used for classification
By JAY MILLER jmiller@crain.com
I
GETTING INTO THE APP MIX
Creating mobile applications for smart phone use benefits some companies, but developers say technology not necessarily for all
By CHUCK SODER csoder@crain.com
F
or the Winking Lizard, it made sense to develop a software tool for customers with smart phones. Customers who take the Bedford Heights-based restaurant chain's "World Tour of Beers" visit Winking Lizard locations again and again, often trying new beers. Hence, they'll take the time to log into the mobile application, which they can use to check out ratings and reviews of the 250-plus beers that the
chain sells. But for a lot of small businesses, spending the money to develop an app for smart phones doesn't make sense, said Jason Therrien, president of thunder::tech, which developed the app for the Winking Lizard. "We don't think it fits most of them," he said. Small businesses need to be careful when deciding whether to develop their own mobile app, according to Mr. Therrien and a few other local software developers.
See APPS Page 14
n early November, U.S. Sens. Ron Wyden, a Democrat from Oregon, and Kelly Ayotte, a Republican from New Hampshire, said they would introduce a resolution asking Congress not to pass any legislation that would tax sales that small businesses make on the Internet. The senators' nonbinding, "sense of the Senate" action was designed to match a similar one in the House. Their goal, a press release from Sen. Wyden's office said, was to ensure the growth of small businesses would not be stifled by additional taxes resulting from online sales. What the legislators don't offer in their resolution, however, is just which businesses would qualify for the exemption they propose. In other words, how small is a small business? Or how large can a business be and still be a small business? The state of Ohio gave one answer to that question last Tuesday, Nov. 8, when Gov. John Kasich rolled out InvestOhio, a tax credit program designed to encourage investments in small businesses. This program defines a small business as one with less than $50 million in assets or less than $10 million in annual sales. The program estimates 900,000 Ohio businesses fall into that category. Of course, it's only one of many answers to the question of what exactly makes a small business. Many politicians have made the protection of small businesses -- evoking the image of the familyowned "mom-and-pop" operation -- a major element of their political philosophies. But in practice, when legislation and regulations are written, the definition varies widely of how large a business can be and still be considered small. The impact of the way small business is defined by government, especially the federal government, might surprise many business owners. "Most businesses today, based on our standards, are small businesses," said Gil Goldberg, Cleveland District director of the U.S. Small Business Administration. "I think we say 98% of all businesses are small businesses."
See SIZE Page 15
14 CRAIN'S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
NOVEMBER 14 - 20, 2011
SMALL BUSINESS
Apps: Optimize website for maximum utility
continued from PAGE 13
A company should seriously consider creating one if it believes it has information that users -- be it a customer, an employee or even a supplier -- would want to access frequently, Mr. Therrien said. Otherwise, people will use Google to look up what they need, he said. Some companies also might opt to develop a website designed to work well with smart phones instead of an app that users would download onto their phones, he said. For instance, thunder::tech is finalizing development of an online
product catalog for Pittsburgh-based Triangle Fastener Corp., which sells screws, washers, rivets and sealants to construction companies. For Triangle, which has an office in Cleveland, one advantage of going with a web-based tool was that it didn't have to develop different apps for different smart phones.
Start small
Other companies don't even need to go that far, Mr. Therrien said. "If you're going to do anything mobile, make your site mobile. Optimize the heck out of that,"
he said. Though mobile apps are a hot topic, most small businesses have yet to develop their own, said Randy Carpenter, senior director of marketing and public relations for the Council of Smaller Enterprises. However, COSE itself does have an app. The Cleveland-based organization had thunder::tech develop an iPad app for the 15 COSE employees focused on recruiting and retaining member businesses. The interface makes it easier for them to show videos, to jump between information about
different programs and to email information to prospects, Mr. Carpenter said. Next year, COSE might start developing apps members could use, he said, mentioning an idea for an app that would help businesses find ways to cut their energy costs. "We've got a couple things on the drawing board if all goes well," he said. DXY Solutions LLC of Cleveland occasionally develops mobile apps for small businesses, but most of the mobile software developer's clients are Fortune 1000 compa-
nies, said principal Dan Young. The cost of the apps DXY typically builds range from roughly $12,000 to $35,000, Mr. Young said, noting that some small businesses are deterred by the cost. "A quality application is going to cost in the tens of thousands of dollars," he said. Those who still are interested in having an app developed should start with something small and carefully analyze the costs and benefits, Mr. Young said. "Get something out there, but start small and measure it," he said.
App happy
Apps that reside on the smart phone itself have a few advantages over web-based tools, according to Messrs. Therrien and Young. For instance, they tend to be faster and can more seamlessly tap into global positioning systems and other technology embedded in smart phones. But like Mr. Therrien, Mr. Young said some companies are better off going with web-based software. One example is Demopoulos & Associates LLC of Rocky River. The small private investigation firm just needed a simple tool that would allow people to use their smart phones to file cases with the company, said owner Pete Demopoulos. The web app is working well so far, he said. "It really has taken off for us," he said. BFG Supply Co. of Burton is going with an app customers would download to their phones, once it is finished. The distributor of horticultural products aims to let customers -- professional gardeners and greenhouse managers -- use their phones like barcode scanners to access information about various BFG products. The app also would contain a messaging tool that would let users know whether a BFG sales representative is available to talk by phone or chat online, said Tim Gallagher, vice president of technology for BFG. Small companies rarely have the staff to develop apps internally or the resources to do much research on what type of apps customers would use, Mr. Gallagher said. For BFG, the prospect of improving customer service makes the effort worthwhile, he said. "You look for that opportunity to enhance customer experience," he said.
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CRAIN'S CLEVELAND BUSINESS 15
SMALL BUSINESS
Fostering a mobile work force key to maintaining relevancy
C
an you imagine any business being successful today without offering employees access to laptop computers or ensuring they are equipped with mobile phones? Today, mobile technology is simply a given for businesses that want to compete and win. While many companies invest in the technology necessary to enable a remote work force, most haven't adopted policies that allow employees to use technology to work from home or other locations outside the traditional office setting. Working remotely from home or on the road -- dubbed "working without walls"-- is no longer an employee perk. Instead, it is a business imperative. Through mobile technology, businesses now are not only able to communicate and collaborate faster and more easily than ever before, but they are expected to do
so by clients and customers. These days, businesses move at a velocity that does not allow time for trudging through an alternative snow route to the office or for waiting overnight for a project to be submitted. Businesses unable to break away from their cubicles and office confines can expect to see their competitors surge past them. Many companies are reluctant to allow employees to work remotely because they believe the home environment offers too many distractions and that work quality and productivity will suffer. The truth is just the reverse, however: Productivity actually increases for employees who are enabled to work from home or outside the office. That surprising finding was revealed in a recent study commissioned by Microsoft and conducted by Ipsos Public Affairs that surveyed more than 4,500 employees across
JOHNSPRECHER
ADVISER
the United States. In fact, 64% of total respondents reported they are more productive when working remotely. Why? The survey respondents said their biggest reason for working remotely is to avoid commuting to work, which causes unnecessary downtime, expensive fuel costs and frustrating traffic. They also cited value in the opportunity to better balance their work and home priorities with a flexible work arrangement. While boosted productivity is one benefit of working without walls, the survey also revealed enhanced employee retention and job satisfaction, improved collaboration
Size: Employees, industry can be determining factors
continued from PAGE 13
among employees, reduced real estate expenditures and lowered operating and maintenance costs. In addition, policies, practices and technology that support working without walls give companies access to a larger pool of talent. Today's employees expect to be as mobile in their professional lives as they are in their go-anywhereand-stay-connected personal lives -- and they'll apply first to those businesses that enable them to work in a mobile fashion. In short, businesses that fail to implement telework policies and technologies are at a competitive disadvantage, falling behind in employee recruiting, satisfaction, retention and productivity. The good news is that, according to the survey, more than three quarters of employees (77%) said their companies provide technology support for working remotely. This could be a missed opportunity since only a little more than half (57%), however, work for companies that offer a formal telework policy.
This means that we may be equipping our employees with the technology they need to experience the benefits of working remotely, but in many instances, we're not empowering them to use it. In the survey, employees reported they work remotely an average of four days per month -- but they would prefer to do so nine days a month. For many businesses, their policies simply have not caught up with their capabilities; and that limits their ability to catch up and surpass competitors. Businesses need every advantage they can muster in today's economy, and getting a leg up can start with taking a step outside the office to enable the creativity, productivity and connectivity of employees. Work to align your employee policies with the practices that will best boost your business. Mr. Sprecher is the enterprise account team manager at Microsoft, who works at the company's office in Independence.
Federal and state health and safety regulations and tax reporting requirements do change as companies pass various size mileposts, said Steven Millard, president and executive director of the Council of Smaller Enterprises, the region's small business advocate. "Companies hit thresholds," he said. "When they hire their first employee, everything changes because there are new requirements. "When they hire their 25th employee, things change as well in the way some regulations are written to kick in at 25 employees; when they hire their 50th employee, that's another threshold. Once you get past that point, things don't change a lot as you go higher, he said. However, those rigid, government-imposed mileposts don't usually impede the interest business owners have in growing their enterprises," he said. "I don't think that employers are going to intentionally not grow in most cases because of those requirements," he said. "They may at some point want to stay smaller because of the complexity but I don't think that a large number of employers are feeling that way." Just as regulations may get more complex as an enterprise grows, there's no shortage of confusion when it comes to some standards of determining a small business. According to the SBA's Table of Small Business Size Standards, certain categories of manufacturers, among them glass and tire makers, are small businesses as long as they have fewer than 1,500 employees. At the same time, however, under the industry-specific definitions of the SBA, a heating oil dealer that hires its 51st employee is no longer a small business. The table has hundreds of categories and sets a number of fairly precise cutoffs. If you operate a family clothing business, for example, the Small Business Administration considers
you a small business if your sales are less than $35.5 million. But if you only sell children's clothes, you're cut off from SBA loan programs at $30 million. If you sell women's clothes, it's $25.5 million; and if it's men's clothes, it's only $10 million.
Moving yardsticks
In other corners of state and federal government, and in the private sector occasionally, more restrictive definitions are applied. For example, most businesses that qualify for an SBA-guaranteed loan probably don't qualify for a small business tax credit under coming health care reform. The Patient Protection and Affordable Care Act gives a business tax credit to small businesses to encourage companies to offer health insurance. Its definition of a small business? One with fewer than 25 employees. Many federal regulatory agencies generally use the SBA's definition, though they often refer to a sort of corollary definition from the Small Business Regulatory Enforcement Fairness Act of 1996. That law says there is no definition of "small business," though it embraces the SBA notion that a small business is one that is independently owned and operated and which is not dominant in its field of operation. Meanwhile, James Kraft, director of the Small Business Development Center in Cleveland Heights, one of 63 offices around the country that counsels small business owners and aspiring entrepreneurs, has developed his own yardstick. "We deal a lot with the startups that have one or two employees or the existing business that might go up to 100 or 150 employees and have a couple million dollars in sales," he said. "In many years of working, I don't think I've seen a company with much more than 200 employees."
16 CRAIN'S CLEVELAND BUSINESS
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personal reason they choose. The terms of the agreement can establish that the loan will be forgiven over the life of the agreement as long as the employee remains employed by the company. The loan amount is taxable as income to the employee, but the tax is spread out over the life of the loan. If the employee leaves before the loan is fully forgiven, then it is repayable in full, with interest. So for the employee, the forgivable loan is a tax-deferred up-front payment for future service, with a fairly big club if the employee leaves the company before fulfilling the terms. The Internal Revenue Service and case law have established that the forgivable loan will not be treated as compensation for tax purposes as long as the loan represents a bona fide debt agreement. If it were compensation, it would be taxable the day it is paid. But as a loan, it is taxable only as it is repaid or forgiven over time, making it the hook that helps retain people in key positions. Proper documentation of the loan agreement is key to assuring it passes muster with the IRS. It must be established with a promissory note or binding agreement signed
by both parties. It must contain a forgiveness or repayment schedule, interest charges that are based on market rates, and clear terms and conditions for forgiveness, repayment and default. Likewise, it cannot contain language referring to an award, a bonus or compensation. To illustrate how it might work as a retention tool, imagine a small manufacturing company needs to hire a general manager to oversee day-to-day operations. The company can offer a competitive compensation and benefits package, but it needs to sweeten the offer to its top candidate. As part of the offer, the company adds a $200,000 loan on signing, forgivable in equal amounts each year if the manager is still employed with the company in the same position five years later. If the manager remains with the company all five years, gross income will be increased by $40,000 each of five years to represent the forgiven loan amount each year of employment. If the employee leaves before the fifth anniversary, the outstanding loan balance must be repaid, with interest and penalties as established in the loan agreement. As companies continue their quest to attract and retain the right talent to fill key positions, the forgivable loan is a tool offering an appealing mix of tax benefits and incentives. Mr. DeMarco is vice president and director of tax services for the regional accounting and business consulting firm of Meaden & Moore, headquartered in Cleveland.
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he Estate Planning Council of Cleveland, in conjunction with Crain's Cleveland Business, is pleased to present the annual Estate Planning Section. It is the council's goal to offer the community valuable information related to financial, retire-
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Carl A. Murway Jill F. Helfman
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Consider your estate. Who do you want to inherit your assets? If you become incapacitated, who should handle your financial and medical decisions? What about federal estate tax exemption changes? Could a second marriage complicate your decisions? From estate and marital planning, to fiduciary litigation and corporate succession, we counsel clients through
ment, insurance, business regarding the transition succession, and estate and of a family-owned busicharitable planning. The ness, planning for retirearticles and commentary ment, creating a legacy for on the pages that follow your family or fulfilling have been provided by philanthropic goals, the some of Northeast Ohio's articles in this section most experienced profeswill address these issues sionals in these fields. and the benefits of LISA MICHEL Estate planning is one receiving comprehensive of the most overlooked areas of tax and estate planning advice as personal financial management. part of the planning process. It is estimated that more than The Estate Planning Council 120 million Americans do not of Cleveland is composed of a have up-to-date estate plans to diverse array of more than 440 protect themselves or their famiprofessionals working in the lies in the event of sickness, acciGreater Cleveland area, including dent or untimely death. Each attorneys, accountants, bankers year, this costs wasted dollars and and trust officers, financial planhours of hardship, which can be ners, insurance agents, appraisers materially minimized with and representatives from charitaadvanced planning and action. ble organizations. Our members The financial world in which are available to provide you with we live continues to change. Unthoughtful, tax-effective and certainty looms about the future of value-based planning. Our Counestate and gift tax laws and domestic cil's website (www.epccleveland.org) and international economic percan be a useful resource to locate formance. Nonetheless, the need professionals to assist you with all for preservation of assets built over of your planning needs. a lifetime for the benefit of family, We are pleased to be able to heirs or charities is ongoing. share the insights and commentary Evaluating how your personal of our members and other area objectives for leaving a legacy practitioners with you in this have been affected by the change annual publication. We hope that in laws and market conditions you will find the information inshould include consulting with sightful, helpful and valuable. professionals to advise you on the Lisa H. Michel is president of the Estate methods, techniques and docuPlanning Council of Cleveland and a ments available to meet your trust officer at Key Private Bank. goals. If you have concerns
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CLEVELAND, OH - P: 216/226/7466 F: 216/226/7426 PALM BEACH, FL - P: 561/833/5900 F: 561/833/5951 E-mail: NACanary@cs.com
Planning for the New Year: your annual financial physical
By MARY EILEEN VITALE
N
ew Year's shouldn't be just about making resolutions to better yourself. Consider before the current year's end whether your financial affairs need to be updated. This can include many things we don't think about day to day. Moving forward, at least annually, take stock of your financial and estate plan to prepare for future needs. The following are a few of the financial aspects you should consider each year:
CAFETERIA PLAN ELECTIONS Are your withholding elections current? Medical spending/HSA deferrals Dependent care Insurance coverage PAYROLL ELECTIONS Are your tax withholding elections correct? Is a portion going to savings/investment? HAS YOUR ANNUAL INCOME TAX PLANNING BEEN COMPLETED? ESTATE PLANNING DOCUMENTS Are your will/trusts current? Are named trustees, custodians and advisers appropriate? If you added a living trust, did you retitle your assets? Do you have a durable power of attorney? Is it current? DO YOU HAVE A CURRENT HEALTH CARE POWER OF ATTORNEY AND LIVING WILL?
Mary Eileen Vitale, CPA, CFP, is principal with Howard, Wershbale & Co. Contact her at vitale@hwco.com or (216) 378-7210.
Innovative Ideas...Proven Results
At The Horwitz Group, LLC we understand small businesses; after all we are one. We know what it means to grow a business, nurture relationships, and plan not only for the present, but also for the future. If you want a firm who can relate to your individual concerns, develop innovative solutions, and provide proven results, contact us at:
BANK ACCOUNTS Are these titled correctly? Do they provide for proper transfer at death? INVESTMENT ACCOUNTS Are these titled correctly? Are the asset allocations diversified and updated to reflect your risk tolerance and time to retirement? Are the investments appropriate for your current income tax situation? 401(K) OR 403(B) RETIREMENT PLANS Are your deferral/contribution percentages correct for the
The Horwitz Group, LLC
130 Springside Drive, Suite 106 Akron, OH 44333 (330) 670-5300 stu@thglawfirm.com Providing Corporate, Estate, Succession, and Tax Planning
upcoming year? Will your deferral/contribution percentages get you the maximum company match? Have you considered Roth versus Traditional IRAs? Are the asset allocations diversified and updated to reflect your risk tolerance and time until retirement? Are beneficiary designations current?
ESTATE PLAN CHECKUP
By LINDA DELACOURT SUMMERS and PATRICK TULLEY
D
OUR INDEPENDENCE IS YOUR PEACE OF MIND
o you visit your doctor for an annual checkup? When you do, isn't it nice to hear that everything is just fine and that there are no changes? Sometimes, however, the doctor finds issues that need addressed. Your estate plan needs a checkup from time to time as well. While not as often as a physical, every few years you should evaluate your estate plan. Consider the following as you evaluate your plan:
LINDA DELACOURT SUMMERS
PATRICK TULLEY
you become incapacitated? Do you have an alternate, just in case?
ning documents in the world won't mean a thing if your accounts are not titled properly to work in conjunction with your will and/or trust. Part of your checkup should include contacting all financial institutions holding your accounts and the life insurance companies holding your policies and asking "how is my account titled" and/or "who is my beneficiary?" Many of you will be surprised at what you learn.
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Last will and testament. Who do you want to inherit your property? Are your executors and guardians still appropriate choices? Trust agreement. Do you have a trust agreement? If not, should you? A trust agreement allows you to control who gets your assets and when. It can help you avoid probate and save estate taxes. At what age do you have your assets being distributed outright to your children? Are your children capable of receiving those assets outright without a detrimental effect on their desire to make their own way?
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Durable power of attorney for health care, living will and final arrangements. In case you cannot, have you given someone the power to make health care decisions for you? Have you made your desires known to your family members regarding life support? Are you an organ donor? Do you want to be buried or cremated? Making certain decisions ahead of time eases the burden on those named to take care of you. Provide for the orderly transfer of any business. If you own a business, you should have a succession plan. If you are the sole owner, who is going to run your business if you are not there? If you own a business with others, do you have a buyout agreement? How is it going to be funded? Review account ownership and beneficiary designations. All of the estate plan-
7
Storage of documents and information. Where are your original documents stored? Do you have a complete list of your assets? Who, other than you, knows the password to the account information that you keep on your computer? Estate planning is not just about making sure your assets go to the right people in the right way. It also includes the preparation of documents and communication of desires so that your loved ones' burdens are eased. Just like with a physical checkup, do your estate planning checkup not only for you but for them.
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Durable power of attorney. Have you given a trusted person authority to handle your finances and property if
Linda DelaCourt Summers and Patrick Tulley are estate planning attorneys at Ulmer & Berne LLP. Contact Summers at (216) 583-7212 and Tulley at (216) 583-7234.
Crain's Cleveland Business Custom Publishing
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ESTATE PLANNING
NOVEMBER 14 - 20, 2011
S-5
PLAN INSPECTIONS
How estate planning can help you
By DORIS SEIFERT DAY
O
ne of the first things that comes to mind when someone hears "estate planning" is saving taxes. Many individuals do not bother to pursue this planning because they believe that their assets will not be affected by the federal estate tax. However, there are many advantages to estate planning. Yes, there can be both federal and state tax advantages. These may become less important if the federal estate tax threshold remains at $5 million and Ohio retains its plan to eliminate its estate tax in 2013. Until that time, even for a small estate, significant savings can be realized by taking advantage of estate planning techniques. Planning requires you to review your assets and decide who you would like to receive them. This review allows you to consider
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THE ESTATE PLANNING COUNCIL OF CLEVELAND
President Lisa H. Michel
Tanzie D. Adams Kelly G. Adelman Christopher P. Adkins Charles F. Adler, III Richard A. Ahrens Thomas D. Anderson Graham T. Andrews Oakley V. Andrews Gordon A. Anhold Gary S. Archdeacon Kemper D. Arnold Rosanne J. Aumiller James S. Aussem P. Thomas Austin Charles J. Avarello Molly Balunek Peter Balunek Alexander D. Barclay Lawrence C. Barrett Stephen Baumgarten Edward J. Bell Steven Berman Gina Marie Bevack-Ciani Mohammed J. Bidar Gary B. Bilchik John J. Bindas Michelle M. Bizily James A. Blue Alane Boffa Jason Bogniard Daniel L. Bonder Nicole Bornhorst Aileen P. Bost Christ Boukis Laura Bozell Herbert L. Braverman Christopher P. Bray James R. Bright David J. Brown Don P. Brown C. Richard Brubaker Robert M. Brucken Martin J. Burke, Jr. Eileen M. Burkhart Robert C. Burkhart Amanda M. Buzo Janice M. Cackowski Linda Cahill J. Donald Cairns Peter H. Calfee Carl Camillo Nancy H. Canary William G. Caster Sal A. Catalano James R. Chriszt Trevor R. Chuna Mark A. Ciulla R. Michael Cole Warren Coleman Jeffrey P. Consolo David E. Cook James I. W. Corcoran Heather A. Cornell Christy Corrao Barbara J. Cottrell Greg S. Cowan Steven Cox Thomas H. Craft Joseph Crea Stephen Cribley Jean M. Cullen M. Patricia Culler Rand M. Curtiss Cheryl A. D'Amico Jason S. Damicone Stephen M. Darlington Doris A. Seifert Day Dana Marie DeCapite Holly N. Denham Rebecca Dent Thomas A. DeWerth
Vice President Marie L. Monago
Jeannemarie Di Padova Carina S. Diamond David S. Dickenson, II James G. Dickinson Gary L. Dinner Nick DiSanto Mary Ann Doherty Lynda Doland Timothy Doyle Emily A. Drake William A. Duncan Carl Dyczek Howard B. Edelstein Elaine Beth Eisner Michael E. Ernewein Patrick J. Ertle Christopher M. Essig Heather R. Ettinger Christina D. Evans Susan M. Evans Darren A. Ewaska Frank Fantozzi Charles E. Federanich William C. Ferry J. Paul Fidler Julie A. Fischer Mary Kay Flaherty Robert E. Fleck Kimberly A. Florcosky Robert B. Ford Judson Forner Betsy Franz Maryann Clarisse Fremion Patricia L. Fries Sherry Fry William H. Fulton Naomi D. Ganoe Beverly Gans Stacey M. Gardella Stephen H. Gariepy Rao K. Garuda Patricia D. Garven Richard Gary James E. Gaydosh Kyle B. Gee Christopher Geiss Thomas M. Genco Arthur E. Gibbs, III Thomas C. Gilchrist Stephanie M. Glavinos Catherine Klima Gletherow Ronald J. Gogul Scott A. Gohn James A. Goldsmith Susan S. Goldstein Tom S. Goodman Lawrence I. Gould Alexandra Gray Karen Greco Sally Gries Nancy Hancock Griffith Charles M. Grimm Alan Gross James P. Gruber Timothy R. Haber Ellen E. Halfon Sarah Hannibal Ronald F. Hanson Douglas R. Hastings Lawrence H. Hatch Robert A. Hauptman Thomas I. Hausman Janet W. Havener Albert G. Hehr, III Theodore N. Hellmuth James M. Henretta James R. Hickey Mark W. Hicks Jean M. Hillman Joanne Hindel Mark L. Hoffman
Secretary Beth M. Korth
Treasurer Jennifer A. Savage
Program Chair Michael T. Novak
Mark J. McCandless Nancy McCann Karen M. McCarthy Larry E. McCoy Erica E. McGregor Daniel J. McGuire Joseph M. Mentrek Bruce Merrell Mark A. Mihalik Lawrence Mihevic Charles M. Miller Richard S. Milligan William M. Mills Daniel F. Miltner Wayne D. Minich Ginger F. Mlakar M. Elizabeth Monihan Michael J. Monroe Kenneth R. Morgan Philip G. Moshier Susan C. Murphy Hoyt C. Murray Norman T. Musial Christine Myers Jodi Marie Nead Lisa Wheeler Neely Robert Nemeth Michael A. Niederst Lindsey Nordloh Anthony J. Nuccio Eric A. Nye Susan S. Nye Michael J. O'Brien Lacie L. O'Daire Linda M. Olejko Leslie A. O'Malley Charles J. O'Toole Chris Parker Michael J. Parry Jodi L. Penwell Michael D. Pepe Dominic V. Perry Craig S. Petti Daniel W. Phillips Thomas Pillari John W. Pinter Gregory M. Pinter Douglas A. Piper Kevin J. Plank Candace M. Pollock Mary Ellen Potter Douglas Price Maria E. Quinn Howard S. Rabb Susan Racey Jeffrey H. Reitzes Linda M. Rich R. Andrew Richner Elton H. Riemer Michael G. Riley Frank M. Rizzo Lisa Roberts-Mamone Kenneth L. Rogat James D. Roseman Carrie A. Rosko Larry Rothstein Rennie C. Rutman Patrick J. Saccogna Robert Sanders Ronald S. Schickler Bradley Schlang Dennis F. Schwartz Vassie Scott, Jr. June A. Seech John S. Seich Holly Selvaggi Emily Shacklett Andrea M. Shea Stanley E. Shearer John F. Shelley Lea R. Sheptak
Immediate Past President Radd L. Riebe
Nick Shofar Roger L. Shumaker Sandra M. Skocir Mary Jean Skutt Mark A. Skvoretz Michael J. Sliman John M. Slivka Martha B. Sluka N. Lindsey Smith Cristin Snodgrass Michael T. Sommerfeld James Spallino, Jr. Richard T. Spotz, Jr. William L Spring M. Randal Stancik Cindy L. Steeb Kimberly Stein Laurie G. Steiner Saul Stephens E. Roger Stewart John M. Stickney Robin R. Stiller Robert H. Stock Diane M. Strachan Lori L. Sullivan John E. Sullivan, III Linda DelaCourt Summers Scott Swartz Joseph N. Swiderski Natalie Bell Takacs Yeshwant K. Tamaskar John R. Telich, Sr. Mark M. Tepper Barbara Ann Theofilos Donald A. Thompson Donna Thrane Philip Tobin Eric Tolbert Floyd A. Trouten, III Mark A. Trubiano Patrick J. Tulley John R. Tullio, Jr. Diann Vajskop Robert A. Valente Missia H. Vaselaney Joseph Frank Verciglio Catherine Veres Anthony Viola Mary Eileen Vitale Michael A. Walczak Kimberly A. K. Walrod Robert W. Wasacz Neil R. Waxman Ronald F. Wayne Michael L. Wear Stephen D. Webster David G. Weibel Jeffry L. Weiler Richard Weinberg David V. Weisberg Katherine E. Wensink Elizabeth Wettach-Ganocy Marcia J. Wexberg Terrence B. Whalen Sharon Kai Whitacre Frederick N. Widen Geoffrey B.C. Williams Erica K. Williams Scott A. Williams Teresa M. Wisniewski Nelson J. Wittenmyer Matthew D. Wojtowicz James D. Yurman Jeffrey M. Zabor David M. Zolt Jack Zugay Gary A. Zwick Donald F. Zwilling
If you would like to give a portion of your estate to charity, some assets are more advantageous than others.
whether your beneficiaries have special circumstances and if they would benefit from receiving the inheritance in a form other than an outright distribution. Remember, if you do not specify who will receive your assets, state law will. You may want to consider which specific assets (and not just an amount or percentage) a beneficiary receives. If you would like to give a portion of your estate to charity, some assets are more advantageous than others. Consider the form in which you hold your assets. You can create a grantor trust, which will allow you to retain complete control of your assets but avoid probate court costs and delays. It also offers other advantages, such as a trustee to handle the management of trust assets, when the grantor is unable or unwilling to do so. It provides an opportunity to organize and plan, which may make your current asset management more efficient and streamlined. Consider estate planning and the opportunities it may provide to you and your beneficiaries. For questions or concerns contact your tax adviser.
Doris Seifert Day is director of taxation for Walthall, Drake & Wallace, LLP. Contact her at (216) 573-2330.
CONTACT US
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Doris Hogan Ronald D. Holman Harold L. Hom Robert S. Horbaly James M. Horkey Brent R. Horvath Michael J. Horvitz Stuart M. Horwitz Barbara E. Irr Lynnette Jackson George A. Jacobs Paula Jagelewski Christopher P. Jakyma Barbara Bellin Janovitz Robert B. Jensen Craig C. Jernigan Theodore T. Jones James O. Judd Matthew F. Kadish Stephen L. Kadish Ronald L. Kahn Joseph W. Kampman Karen J. Kannenberg Amy A. Kapostasy Kimon P. Karas William E. Karnatz, Sr. William E. Karnatz, Jr. Bernard L. Karr Howard Kass David B. Kearns John D. Kedzior Debra M. Keene Lesley Keller Woods King, III Amy I. Kinkaid Richard B. Kiplinger Raymond G. Klinc Paul S. Klug Victor G. Kmetich Erik R. Kneip Daniel R. Kohler James R. Komos Thomas H. Konkoly William H. Koptis J. Joseph Korpics Harvey Kotler Roy A. Krall Frank C. Krasovec, Jr. Eugene A. Kratus Thomas W. Krause Barbara J. Krepop Bruce A. Kretch James B. Krost Deviani Kuhar Craig A. Kukla Thomas J. LaFond William P. Lange Gary E. Lanzen Donald Laubacher Daniel J. Lauletta Herbert B. Levine Wendy S. Lewis Keith M. Lichtcsien James Lineweaver David F. Long Ted S. Lorenzen Amy R. Lorius Adrienne Love Charles S. Lurie Joshua A. Lusk Robert M. Lustig James M. Mackey David S. Maher Stanley J. Majkrzak Chad Makuch Laura Malone Theodore M. Mann, Jr. Karen T. Manning Wentworth J. Marshall, Jr. Melissa L. Marvin Michael W. Matile
Crain's Cleveland Business Custom Publishing
S-6 NOVEMBER 14 - 20, 2011
ESTATE PLANNING
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TRENDS
The give and take in estate and gift taxation
Lawmakers increase exemption with a catch ... it expires in 2013
By RADD RIEBE
Interest rates
L
ast December, Congress In August, the Federal Reserve was in the giving mood announced its intention to mainwhen it implemented a $5 tain low interest rates until midmillion exemption for gift 2013. and estate taxes and dropped the Estate planning stratemaximum rate to 35%. gies that take advantage However, as if too much of these historically low good news is a bad thing, rates are particularly Congress chose to sunset appealing. The Section its largess so that on Jan. 7520 rate, which the IRS 1, 2013, the exemption uses in valuing annuities, reverts to $1 million, life interests or interests with a maximum tax rate for terms of years and of 55%. For Congress, the remainder or reversionary RADD RIEBE lure of a 55% tax rate is interests, is at the lowest that it produces $550,000 it has even been. (See chart in taxes for every $1 million at right). above the exemption. While favorable conditions exist for tax-efficient estate planning, these conditions may not remain. It is unknown when the window of opportunity slams shut. It appears there is only one way rates can go in 2013 -- up. The likely shelf life of low interest rates corresponds with the scheduled expiration of the $5 million exemption.
Grantor retained annuity trusts (GRAT)
Legislation is ready to go to require a minimum 10-year term for a GRAT. The anticipated benefit of a
GRAT is to outlive the term so that the remainder passes outside the grantor's estate. There is greater mortality risk in a 10-year term GRAT that makes realizing the potential benefits from the GRAT less probable. Congress may pull the GRAT legislation at any time and attach it to a bill whenever a revenue raiser offset is needed. The combination of the low 7520 rate and the specter of this legislation showing up in a bill in the near future presents a compelling reason to establish a GRAT today.
Deficit Reduction will make a recommendation by Nov. 23 to deal with future deficits. The Obama administration has proposals to curtail valuation discounts in family-controlled businesses for transfers among family members. Restricting valuation discounts is one area that may be viewed as a loophole closing rather than a rise in taxes.
Estate planning advantages today
Interest rates are low, two-year GRATs are valid, valuation discounts are available, the top gift and estate rate is 35%, and the exemption amount is $5 million. It is difficult to foresee when an opportunity to transfer assets to loved ones will be as favorable as it is now.
Tax rates
A substantial increase in estate and gift tax rates is already locked in for 2013, unless Congress acts. In all likelihood, Congress will not be concerned with estate and gift rates until after the November 2012 presidential election. It will be a brave individual who waits until then to find out whether 2013 will be a good or bad estate tax year.
Your legacy can truly make a difference.
Your philanthropic support helps University Hospitals provide the highest quality of care for our patients. It's because of you that we can live our mission every day: To Heal � enhancing patient care, experience and access To Teach � training future generations of physicians and scientists To Discover � accelerating medical innovations and clinical research And it's with your support, that we'll continue to provide the same high-quality care that we've been providing for nearly 150 years. Join the many who are making a difference. To learn more about ways to leave your own legacy, contact our gift planning team at 216-983-2200 or visit www.UHgiving.org.
Valuation discounts
The Joint Select Committee on
Radd Riebe is a managing director in the Valuations and Financial Opinions Group at Stout Risius Ross Inc. in Cleveland. Contact him at (216) 373-2998 or visit www.srr.com.
Crain's Cleveland Business Custom Publishing
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ESTATE PLANNING
NOVEMBER 14 - 20, 2011
S-7
TRENDS
Another brief reprieve: the `new normal' for transfer taxes?
By LINDA M. OLEJKO
2012 marks an important year in estate planning
By JOHN PATRICK
NINE YEARS This is how long Congress went unable to draft a long-term resolution for estate and gift taxes. The 2001 tax reductions provided for a complete repeal of estate tax in 2010, but a full reinstatement of higher taxes in 2011. Higher taxes largely were postponed for two years by the 2010 Tax Act, which provides quite generous provisions that each of us should now apply to our best advantage.
Families who can make large gifts should do so as soon as possible. However, is it prudent to relinquish cash flow and security? Most fundamental is the need to understand the actual cash flow and level of assets you require to sustain your lifestyle and, importantly, your peace of mind. Glenmede's approach is to develop, with you, a balance sheet and cash flow statement that projects your big picture and shows how your assets can fulfill your needs and your tax efficiency objectives.
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GENERATION SKIPPING The $5 million gift tax exemption also applies to gifts to grandchildren and more PLANNING FOR 2013 AND BEYOND LINDA OLEJKO remote descendants. This is a particularly If Congress stands still through 2013, we good time to create a gift in trust for these generations. will again have a 55% estate and gift tax on A "dynasty" trust can last through generations without all assets in excess of $1 million. This uncertainty additional estate tax. requires us to implement short-term responses that will not hamper or impede post-2012 EFFICIENT MONETIZATION OF THIS BRIEF planning. REPRIEVE Many factors important to financial planning will REVISIT YOUR ESTATE PLAN continue to remain uncertain. We can, however, Questions worth posing: Under current law, work with the facts we have to help clients craft an would your current plan leave your spouse without optimal gifting and estate plan that considers their adequate resources? Do other provisions in your unique personal needs and wealth objectives in this estate plan divide property based on amounts climate of evolving legislation. defined by the tax consequences? MAKE GIFTS Each of us has the ability to pass along $5 million free of estate and gift tax through Dec. 31, 2012.
Linda M. Olejko is vice president, business development for Glenmede. Contact her at (216) 514-7876 or Linda.olejko@glenmede.com.
he fundamental goal of estate planning is to protect individuals' assets from potential losses. The primary drain on an estate is transfer taxes, comprised of gift taxes assessed on assets gifted during a person's lifetime and estate taxes assessed on assets gifted upon death. The last 12 months have seen taxpayer-friendly progress in helping to avoid or minimize transfer taxes. The 2010 Tax Act allows each U.S. citizen to protect up to $5 million from federal transfer taxes through the 2012 calendar year and reduced transfer tax rates from 45% to 35%. The law also introduced the portability of a married person's exclusion amount by allowing the estate of a surviving spouse to utilize any exclusion amount that was not used at the deceased spouse's death. In June, the good news continued when Ohio enacted a law to repeal its estate tax for deaths after Dec. 31, 2012. There are no new federal or state laws that will apply on Jan. 1, 2012, to weaken the impact of these laws. However, 2012 is important under existing federal transfer tax rates since it expires Dec. 31, 2012. Without action,
those rates will revert to 2001 levels ($1 million exclusion and 55% maximum tax rate). President Obama's fiscal year 2012 budget proposal includes features not as advantageous as the law he signed less than a year ago, but better than what existed in 2001. The proposal permanently restores the federal transfer tax laws to 2009 levels after the 2012 calendar year. Under the proposal, federal estate taxes will apply to assets valued over $3.5 million at a 45% rate. Each U.S. citizen will only be able to gift up to $1 million on top of the annual gift tax exclusion (currently $13,000 a year). The proposal limits dynasty trusts to a maximum term of 90 years, and imposes a minimum 10-year term for Grantor Retained Annuity Trusts, eliminating valuation discounts. Offsetting these setbacks, the proposal plans to make the portability feature of the 2010 Tax Act permanent. During these uncertain times, it is best to align yourself with a skilled professional who will help you make the best decisions for you and your estate.
John Patrick, Esq., is a shareholder with Reminger Co., LPA, Attorneys at Law. Contact him at (216) 430-2207 or jpatrick@reminger.com.
It's not magic.
It's the right people. The key knowledge. The relevant experience. The best tools. Put together with precision, passion and integrity.
Calfee's team of estate and trust attorneys can help you develop an estate plan that is tailored to your circumstances and goals. We have comprehensive experience that includes estate and trust planning and administration, business succession planning, asset protection planning and charitable gift planning.
When Calfee's attorneys are part of your team, excellence is at your fingertips.
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www.calfee.com
Cleveland | Columbus | Cincinnati
Crain's Cleveland Business Custom Publishing
S-8 NOVEMBER 14 - 20, 2011
ESTATE PLANNING
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TRENDS
Best time for gifts? There's no time like the present
By JOSEPH M. MENTREK
Ohio estate tax repeal effect yet to be seen
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sunset at the end of 2012, and again we are faced with the possibility of or individuals who reverting to the lower are inclined to exemption and higher include a lifetime rates that were in place in gifting program to 2001. Many consider now children and grandchilthrough the end of 2012 dren as part of their estate as a window of opportuplanning strategy, quesJOSEPH nity to make significant tions abound. What to MENTREK gifts in case lawmakers give? How to give? How scale back the exemption. much to give? Who should beneAnd while I would like to credit fit? With the continuing uncerour legislators for creating this tainty in federal estate, gift and window of opportunity, in reality generation skipping tax laws, the the fundamental core of any question of when to give poses an gifting strategy is designed to additional challenge. remove value and future appreciaChanges in federal tax laws that tion from the taxable estate of the occurred near the end of 2010 donor. increased and unified the lifetime So the sooner one is able to estate, gift and generation skipmake a gift, the better, because the ping tax exemption at $5 million, mere passage of time and the decreased the maximum tax rate power of compounding value are to 35% and added the ability of a the factors most likely to make married couple to effectively share any gifting strategy effective. The their combined estate tax exempfact that we are in a low point in tion amount through a concept the valuation cycles of closely known as portability. held business, real estate and These changes are scheduled to
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other investment assets makes potential results more attractive. Add to that the leverage that can be achieved from more sophisticated techniques and historically low interest rates, and the opportunity increases exponentially. So whether your motivation is high exemption amounts, low asset values or low interest rates, whatever gifting strategy you choose to pursue, the sooner you act, the greater the potential benefits to you and your family.
Joseph M. Mentrek, J.D., is vice president, Meaden & Moore, Ltd. Contact him at (216) 928-5343.
Dad's my hero.
He can fix everything from hot water tanks to
BB guns. My son has the only two-story tree fort in the neighborhood thanks to him. He's my go-to guy. Ask him about the big Cleveland game in ` 64, stocks, deep frying turkeys-he knows it all. But he doesn't get around like he used to. He's getting older and he can't fix that. Wonder what he wants for the future? How do I bring it up?
following Ohio's lead. Vermont increased its exemption from $2 n June 30, Gov. John million to $2.75 million, and Kasich signed the law North Carolina and Delaware that repealed the Ohio increased their exemptions to estate tax for those who $5 million to match the federal die on or after Jan. 1, 2013. The estate tax exemption. legislation was included as part of However, other states are the Ohio budget bill. taking the opposite approach. The Ohio estate tax has been Looking to increase revenues around since 1968, generating during these challenging economic $333.8 million in fiscal year times, they are imposing new and 2009. Twenty percent of higher estate taxes. Illithe estate tax was distribnois revised its estate tax, uted to the state general effective Jan. 1, 2011, revenue fund, and 80% taxing estates exceeding was distributed to the $2 million and with a top local government where rate of 16%. Connecticut the decedent resided. lowered its exemption However, the tax profrom $3.5 million to $2 duces less than 1% of million per estate. total annual revenues for JOSEPH Gov. Kasich believes KOVALCHECK JR. excess state taxes are a Ohio cities, villages and townships. Additionally, major reason that capital, because proceeds go to the locality businesses and jobs have fled where the decedent resided, it was Ohio in recent years. Many felt that wealthy jurisdictions believe the elimination of the received a disproportionate share estate tax will help stop the exodus of estate tax revenues. No estate of Ohio residents who have fled tax revenues go to Ohio's schools. to Florida or one of the other 27 Before the repeal, Ohio was states without an estate tax, and one of 22 states that had estate with luck, will attract new resiand/or inheritance taxes. Among dents and their businesses. estate tax states, Ohio had the lowest exemption amount, just Joseph P. Kovalcheck Jr., CPA, is prin$338,333, but also had the lowest cipal with M+N Advisory Services LLC. top rate at 7%. Some states are Contact him at (216) 363-0100.
By JOSEPH P. KOVALCHECK JR.
What should our game plan be?
Have you ever thought about what your loved ones want in their final years of life? Thinking about it is the first step to talking about it. At Hospice of the Western Reserve, we believe discussing it early will help you and your family make the right decisions when the time comes. That's why we encourage you to talk about it now. Contact us for a booklet that explains our services and helps you start the conversation.
hospicewr.org /plan | 855.852.5050
Crain's Cleveland Business Custom Publishing
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ESTATE PLANNING
NOVEMBER 14 - 20, 2011
S-9
TRENDS
TAKE THE HIGH ROAD
The current federal exemption from estate taxes is $5 million per citizen taxpayer. Left untouched that exemption will expire on Dec. 31, 2012. WHAT MAY HAPPEN? The $5 million exemption and the rate of 35% could be made permanent. The Obama administration has preferred a return to the 2009 exemption of $3.5 million and a maximum rate of 45%. GIVEN THE UNCERTAINTY, WHAT'S BEST FOR ME? People still will want to preserve the maximum amount of their estate for the heirs. Even if there is no estate tax, the more personal reasons for estate planning will exist.
Portability comes with a catch
By STEVEN COX
O
Despite uncertainty, proper estate planning still will be compelling issue in 2013
By JIM ROSEMAN
H
perhaps lineal descendants. The current federal exemption istorically, much of the from estate taxes is $5 million per estate planning that has citizen taxpayer. Left untouched, been done has been to that exemption will expire on Dec. the drumbeat of estate 31, 2012. One camp wants the $5 tax savings. The potential tax million exemption and the maxisavings versus the cost of estabmum rate of 35% to be made lishing the plan was often very permanent. President Obama has compelling. For all of that, preferred a return to the in modern tax history 2009 exemption of $3.5 there has not been a time million and a maximum when more than 2% to rate of 45%. There are too 3% of estates in this many variables involved country were actually taxto predict the outcome, able. For the 97-plus% of but it is reasonable to the population for whom assume we will have some taxes were not a real issue, sort of estate tax. JIM ROSEMAN the planning was done for In 2013, individuals the protection of self and family. still will be interested in protecting In 2011, a typical estate plan themselves and others in the will have five major documents: event of illness or infirmity, pro A revocable living trust tecting minor lineal descendants A durable financial power of beyond the age of 18, and preattorney serving the maximum amount of A durable health care power their estate among other things. of attorney Some voices in the estate plan A living will ning industry have prophesized A last will and testament the end of the industry without The primary purpose of these major tax planning to drive it; documents is to govern the finanbut even if there is no estate tax, cial landscape of the individual the more personal reasons for for whom they are established. If estate planning will exist and properly established and funded, they will just be more visible they should preclude the necessity once again. of having a guardian of the estate if the grantor becomes ill or Jim Roseman is vice president, senior infirm, and may avoid probate development officer for FirstMerit Bank. administration at death. Contact him at (216) 694-5686 or In addition, if appropriate, the James.Roseman@FirstMerit.com. Firsttrust may set aside assets in a way Merit Bank, N.A. and its representatives that first garners the maximum do not provide legal or tax advice. Indiavailable estate tax exemptions for viduals should consult their personal lethe grantor's estate and avoids future gal/tax adviser(s) before making taxation in the estates of spouses and legal/tax related decisions.
only to the last deceased spouse of an individual. Therefore, if a widow remarries and her most recent n Dec. 17, 2010, the Tax spouse also dies first, she is limited Relief, Unemployment to the new spouse's unused Insurance Reauthorizaexemption amount, even if it is tion, and Job Creation lower than the amount remaining Act of 2010 became law. The new from the first spouse. law raised the federal estate tax Furthermore, the law exclusion amount to $5 expires on Dec. 31, 2012. million (reduced by taxUnless the benefits are able gifts made during extended, portability will lifetime) for individuals no longer be available who die in 2011 or 2012. after 2012. Surviving In the past, without proper spouses and heirs relying planning, a decedent on the tax benefits of either used the exclusion portability may be disapor lost it. STEVEN COX pointed if those benefits Now, for the first time, the unused portion of a decedent's are later disallowed. While many expect that portability will be exclusion amount can be passed renewed, there is no guarantee. to his or her surviving spouse to Moreover, portability does not increase the amount available at cover other taxes like the generathe survivor's death. This "portation-skipping transfer tax imposed bility" of the exclusion between on gifts to grandchildren and spouses can provide a substantial the estate tax imposed at the state tax break to widows and widowers. level. However, portability may not be Portability is not automatic. In as good as it seems. The rules order for a surviving spouse to use governing portability contain siga deceased spouse's exclusion nificant limitations. amount, an election must be For example, portability applies
made by the executor of the deceased spouse's estate on a timely filed federal estate tax return. In many cases, a return would be otherwise unnecessary because the deceased spouse's gross estate is less than the exclusion amount. Under the new rules, even small estates must file a return if they want to preserve any unused exemption. Because surviving spouses can acquire unanticipated wealth, every executor should consider filing an estate tax return when the exclusion amount was not fully used. Of course, the preparation of a federal estate tax return often requires the payment of professional fees and the cost of appraisals. While many couples may be tempted to rely on portability as a substitute for more traditional planning methods, the associated limitations, risks and hidden costs may outweigh portability's apparent benefits.
Steven St. L. Cox is a partner with Roetzel & Andress. Contact him at (330) 849-6714 or scox@ralaw.com.
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Business owners looking for sale can benefit from charitable giving
By PETER A. IGEL
Angela G. Carlin
Karen A. Davey
Jerrold L. Goldstein
Jeanne V. Gordon
Gary W. Johnson
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sales. Planners must consider: The donor's effective tax usiness owners anticipating rates in the year of an anticipated sale, and in the preceding and a sale often wish to satisfy succeeding years; charitable objec Whether an intended tives using part of charity is a public charity their new liquidity. The or private foundation; tax code rewards generosity Whether the busifor donors who plan ness being sold is a C corahead. poration, S corporation, The tax savings from a partnership or LLC; and, charitable contribution Whether the busidepends on the donor's ness will sell assets and effective tax rate, the type PETER IGEL liquidate, or whether it of business interest and will sell equity. the type of charity. Gifts of stock Presale gifts to charity tend to made ahead of a potential sale work best when C corporation allow a double benefit of claiming stock is contributed to public a contribution deduction and also charities, and when a donor has avoiding reporting gain on the some ordinary income to be sale. Charities are tax-exempt on offset by the charitable deducmost income, but could report tion. "unrelated business income" on If a donor anticipates signifiS corporation stock sales or on cant capital gains, contributions passed-through income from asset
might be better in the year before or after a sale, so that the charitable deduction will shelter income taxed at higher ordinary income rates. Post-sale gifts are usually advisable when a donor holds S corporation, partnership or LLC interests because charities could incur significant unrelated business income in sale transactions. Thus, most sellers of pass-through entities participate in the sale and contribute sale proceeds later. Professional planning, early in the process, can guide a business owner through the thicket of issues to create a win-win result for the owners and their favorite charities.
Peter A. Igel is a partner in the tax group at Calfee, Halter & Griswold LLP. Contact him at pigel@calfee.com or (216) 622-8311.
SMITH AND CONDENI LLP Trusted Advisors Since 1980
Proprietors should consider employee stock ownership
By MICHAEL MATILE
T
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here are a number of estate planning considerations for business owners thinking of selling their firms, and among the options are employee stock ownership plans (ESOPs), which can offer a number of benefits. An ESOP is a transition alternative for business owners to create personal liquidity and share ownership with their employees. Frequently thought of only as a succession planning solution, an ESOP also may deliver effective estate planning benefits before and, uniquely, after an ESOP transaction. For business owners who sell less than 100% of their stock to an ESOP, the time immediately following the transaction provides an opportunity to gift shares they still own at a reduced value due to the increased debt and temporary reduction in the company's equity created as a result of the transaction. Depending upon the circumstances, some sellers may be able to defer capital gains taxes on the proceeds from the sale to the ESOP. The owners must reinvest
their proceeds within a year into qualified replacement property (QRP), which is defined in the Internal Revenue Code. And if owners hold the QRP until death, it escapes income taxation during their lifetime and also provides their heirs a stepped-up tax basis in the property upon death. Owners who wish to be charitable with their estate plans also may be able to transfer QRP to a charitable remainder trust without it being considered a disposition that would trigger gain. The trust does not pay tax when it disposes of the QRP, deferring the tax until the donor receives payments from the trust. Likewise, QRP holders may be able to transfer it to a grantorretained annuity trust (GRAT) without triggering gain as a disposition. All in all, this may be the best time for business owners tackling estate and ownership-transition issues to consider an ESOP.
Michael Matile is a senior wealth planner for PNC Wealth Management. Contact him at (216) 222-5885. PNC Bank does not provide legal, tax or accounting advice.
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BUSINESS ESTATE PLANNING
Low rates a boon for business succession
By DEVIANI KUHAR
T
he increase in the exclusion from the estate, gift and generation-skipping transfer tax both during lifetime and at death to $5 million (which will be adjusted for inflation to $5.12 million in 2012) has been the most noteworthy development for those assisting closely held business owners to transition businesses to the next generation. Close behind the rise in the exclusion amount are historically low Section 7520 rates and applicable federal rates (AFRs). This month, the long-term AFR (for intrafamily loans in excess of nine years) will fall to an all-time low of 2.67%. This astonishingly low rate could have profound implications for families who
want to pass their closely held businesses on to younger generations, but whose businesses pro-
Consider overlooked asset protection opportunities
By STUART M. HORWITZ
duce relatively modest annual cash flows. Grantor retained annuity trusts (GRATs) and installment sales using mid-term debt have long been favored methods of transferring family business interests
to younger generations. But if annual, pre-tax cash flows amounted to less than 10% of the transfer tax value of the interest being transferred or sold, a family could not engage in these types of leveraged transfers without owners having to receive back some of their interests (in the case of a GRAT) or face the uncertain prospect of renegotiating the note sometime in the future (in the case of an installment sale). A sale using long-term debt (more than nine years) was possible, but the rate typically was unfavorable. Long-term GRATs usually would offer a more favorable interest rate than the longterm AFR, but the estate tax on potentially the full value of the transferred business interest if the grantor dies during the annuity term of the trust caused most planners to steer away from them. But the landscape has changed
with the long-term AFR about to drop. For example, a business interest that generates 7.67% of pre-tax cash flow per year could be completely out of the first generation's estate in 20 years if an installment sale of that interest were initiated in November 2011. If the business interest can be discounted by 25% for lack of marketability or lack of control, the required cash flow would need to be only 5.75%, on a pre-discounted basis, to complete the transaction within 20 years. This development could have a profound effect on families that want to engage in succession planning. But they need to act quickly. Long-term Treasury yields will rise again, and with them, the long-term AFR will increase as well.
Deviani Kuhar is a partner and chair of the Estate Planning and Probate Department at Benesch, Friedlander, Coplan & Aronoff LLP. Contact her at dkuhar@beneschlaw.com or (216) 363-4469.
I
n today's competitive business environment, companies are looking for ways to streamline their operations and save money. Consider implementing certain business planning techniques that will offer asset protection while also saving you income taxes and help with your estate plan. BUSINESS OPPORTUNITY TRUST (BOT). A BOT is effective when you want to help a child or friend start a business. Since most ventures take time to mature, losses may occur initially. You would be able to use these initial losses on your own income tax return. If the venture is sued, you have two layers of asset protection -- the entity and the trust. If the venture eventually becomes wildly successful, your child/friend receives the lion's share of the appreciation, while you receive a nice return. With a BOT, you avoid all of the problems inherent with a loan. If you loan your child/friend funds to start a business and it fails, your child/friend receives all the losses (which they cannot really use since they have no income). What's worse, if a venture fails you will not sue for the money so
the loan is treated as a taxable gift. A BOT avoids both these problems. MANAGEMENT INCENTIVE PLAN (MIP). A MIP is much more than just a simple deferred compensation plan or bonus plan. It can help protect your business assets from creditors, even from bankruptcy. MIPs provide almost all the benefits of an ESOP, with lower administrative costs. MIPs let you reward specific employees (i.e. discriminate in their favor). Conversely, if an employee leaves or engages in prohibited behavior, you do not have to pay them. This technique allows back-end bonuses to be taxed as capital gains and in some cases, not taxed at all. Finally, if your heirs happen to be key employees, you can include them and not pay gift taxes. The above are proven techniques that have stood the test of time and have been vetted by both the IRS and the courts. In this economy, in which business owners are looking for a competitive advantage, these techniques may be a good start.
Stuart M. Horwitz is managing member of The Horwitz Group, LLC. Contact him at (330) 670-5300 or e-mail stu@thglawfirm.com.
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S-12 NOVEMBER 14 - 20, 2011
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The ups and downs of a GST
By DAVE GAINO
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A generational skipping trust is a complex planning tool
GOOD BENEFITS
This table shows the benefit of a $5 million principal amount compounded at 3% growth per annum with no estate tax, compared with a 45% effective tax rate over five generations.
Y
ou've read about Generation Skipping Trusts (GST) in other sections of this publication. Sound exciting? It really is. Sound complex? It is, in fact, a very sophisticated but powerful planning opportunity. It's critical to understand the true power of a GST before deciding whether it is right for you and your family. To start, we can examine the potential benefit of skipping estate tax at succeeding generations. The table at the right shows the benefit of a $5 million principal amount compounded at 3% growth per annum with no estate tax, compared to a 45% effective tax rate over five generations. The benefit is almost too good to believe. So why not skip? First, neither the grantor nor the spouse of the grantor can have discretionary access to the principal or income. So you must be sure you will not outlive your retained assets. Second, trust beneficiaries will
Years
1 31 61 91 121 151
GST untaxed trust principal
$5,000,000 12,126,312 29,458,016 71,502,336 173,554,936 421,263,382
Principal amount left to next generation without GST
$5,000,000 6,674,972 8,911,050 11,896,201 15,881,361 21,201,528
Trust principal growth before tax Tax savings without GST
$12,136,312 16,201,909 21,629,457 28,875,202 38,548,232 $5,461,341 20,546,966 59,606,134 157,673,574 400,061,854 GST exemption set to expire on Dec. 31, 2012, this tool should be thoroughly explored and understood while it is still available.
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be able to enjoy the income from the trust but never have complete access to the principal, so it is important to consider whether they have access to other capital for discretionary needs. The upside for the future beneficiaries is that the income enjoyed from trust assets will be geometri-
cally more from not having the principal depleted by estate tax every 30 years or so. In addition, estate planning to shelter trust assets from tax is done once, at the start of the trust. Future generations will not need to concern themselves with sheltering trust assets. With the power of the $5 million
Dave Gaino is chairman of Apple Growth Partners and serves as a principal of tax services. Contact him at (330) 8677350 or dgaino@applegrowth.com.
MY BENESCH MY TEAM
Live for today. Plan for tomorrow.
Deviani M. Kuhar, Partner Chair, Estate Planning & Probate Practice Group Licensed to practice law in Ohio
Survivorship stand-by trust is a flexible choice
By LARRY L. ROTHSTEIN
For all the time and effort you've put into building your wealth, you deserve peace of mind in return. The kind that comes from knowing your assets are protected, your wealth will be distributed as you wish, and your future is as secure as you can make it. Whether you need to build an estate plan from scratch, or ensure your current plan is in sync with today's rapidly changing laws, our attorneys can help. We have the specialized knowledge and experience to manage all aspects of your estate.
Gary B. Bilchik, Partner Estate Planning and Probate Practice Group Licensed to practice law in Ohio and Florida
W
Have you considered how taxes will impact your wealth? Do you have a business succession plan in place? Are you sure that your assets have been aligned properly with your estate plan? Have you planned for charitable gifts...long-term care...incapacity? We can assist in these areas and help you manage your assets in ways that will minimize the probate administration process.
Nick D. Shofar, Associate Estate Planning and Probate Practice Group, Licensed to practice law in Ohio
Live for today...plan for tomorrow. Talk to us about how to get started.
Cleveland | Columbus | Indianapolis | Philadelphia | Shanghai | White Plains | Wilmington | www.beneschlaw.com
ith so much uncertainty, people are seeking estate tax solutions that can also provide lifetime benefits. A survivorship stand-by trust may be a good fit as it can provide estate tax liquidity, lifetime benefits and tax advantages. It is most appropriate for a married couple who may have an estate tax liability or other financial obligations. For a business owner, the insurance could "equalize" the inheritance for children not involved in the business. For families using a QPRT (qualified personal residence trust), the insurance could provide substantial funding for maintenance and taxes. There are many reasons to provide financial liquidity for children. In a survivorship stand-by trust, one spouse acts as the applicant and owner of a survivorship life insurance policy. A survivorship life insurance policy insures two individuals and pays a death benefit at the second death. Since one of the insureds is the owner, there is no gift or annual exclusion needed. The owner has complete control over the cash values of the policy during the lifetime. Policy cash values grow tax-deferred and may also be an alternative source of funds in retirement if it is later determined that death proceeds are not necessary. A "stand-by trust" is named as the contingent owner of the policy. The trust language and naming of beneficiaries may be changed at any time during the owner's lifetime since it will not
become irrevocable until the owner's death. Upon the owner's death, the policy automatically transfers to the trust as the contingent owner. The cash value will be included in the owner's taxable estate, and it is assumed that lifetime exemption will be used to offset any tax due. Upon the death of the surviving spouse, the proceeds will pass to the beneficiaries free of any income or estate tax. If a non-owner spouse dies first, the surviving owner needs to gift the policy directly to a trust. This gift again would require the use of a portion of lifetime exemption. Since the owner is an insured on the policy, this would also trigger the 3-Year Rule. As long as the owner survives three years of more, the proceeds then would pass income and estate tax free to the beneficiaries. The survivorship stand-by trust provides substantial flexibility for families seeking to have their cake and eat it too. It provides a structure to eventually provide tax-free death proceeds to the heirs and it also provides access to policy cash values on a tax-advantaged basis during a lifetime. This approach avoids the use of any annual exclusion gifts and postpones the use of lifetime exemptions until a first death. All and all, the survivorship stand-by trust is an attractive approach, creating flexibility and an ability to deal with an uncertain future.
Larry L. Rothstein, CLU, is co-founder of Insurance Management Consultants, LLC. Contact him (440) 801-1800 or visit www.imcwealth.com.
Crain's Cleveland Business Custom Publishing
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ESTATE PLANNING TACTICS
A
Keeping it all in the family: bloodline dynasty trusts 2
By ROBIN ROSE STILLER
n article about bloodline dynasty trusts might evoke thoughts of the trials and travails of the 1980s "Dynasty" television family, the Carringtons. This fictitious family spent considerable time and effort to ensure that "outsiders" did not gain access to the family's considerable Grandma wealth. An indispensible tool to accomplish this asset proSon tection goal is a bloodline Granddynasty trust. child "Dynasty" means power and influence extending over many years. A bloodline dynasty trust does exactly that. It is an estate planning vehicle that provides a set of instructions to administer and
distribute assets over multiple generations for the benefit of only those in the family bloodline. Precisely who is counted in the bloodline is dictated by those creating the trust. Some families include in-laws and domestic partners in the bloodline, while others exclude even legally adopted children. There are three Grandpa primary reasons r that hte ug clients Da wish to create a trust Grandthat will child endure for several generations:
To create incentives that encourage particular behaviors and that develop and nurture family values and relationships while discouraging negative behaviors; and To achieve significant transfer tax savings.
3
To protect and preserve the family assets from those who would dissipate them, including creditors and former spouses of beneficiaries;
1
Retaining the assets in a bloodline dynasty trust protects beneficiaries in a variety of situations, for example, those who are in danger of being sued due to their high-risk professions, those who own their own businesses, those who go through a divorce or a bankruptcy, and those who make irresponsible investment decisions or who spend foolishly. Drafting flexibility and discretion into the document will allow the trust to continue until the assets are exhausted or the last of the bloodline descendants has died ... truly an ending fitting a Carrington.
Robin Rose Stiller, Esq., is an OSBAcertified specialist in estate planning, trust and probate law with Smith and Condeni LLP. Contact her at (216) 771-1760 or Robin@Smith-Condeni.com.
Roth IRA may be right for you
Converting from a traditional IRA can be beneficial
By MICHAEL G. RILEY
R
oth IRAs can be a very effective part of a retirement plan. Every case should be analyzed separately, but converting a portion of qualified retirement savings to a Roth IRA adds flexibility and a hedge against income tax increases. When a retirement account such as a traditional IRA is converted into a Roth IRA, income tax must be paid on the converted amount. Properly handled, the converted amount will provide tax-free earnings and distributions throughout retirement and beyond. There are also potential estate planning benefits to Roth IRAs. For example, Roth IRAs are not subject to the lifetime minimum distribution rules that require retirement accounts to be distributed during retirement, generally starting for the year in which age 70� is attained. Distributions are required to be made at death to the beneficiaries,
but with good planning these distributions can be stretched over many years. In many estates, retirement benefits make up the majority of the family's wealth. In these cases, it is sometimes necessary to pay the retirement benefits to the credit shelter or family trust to capture the benefit of the estate tax exclusion in the account owner's estate, but this is not an optimal income tax or estate tax result. Portability of the exclusion amount might alleviate this problem, but portability may not last beyond 2012.
Donald Hopkins LLC. Contact him at (216) 348-5400 or mriley@mcdonaldhopkins.com.
Roth IRAs can be a much more efficient source for funding credit shelter trusts after death because the credit shelter trust will not be depleted by income tax on qualified Roth distributions. Roth IRAs can deliver meaningful benefits for retirement and to estate beneficiaries, but there are many competing considerations, so timely planning is needed. Ask your tax adviser and estate planning attorney if a Roth IRA conversion is right for you.
Michael G. Riley is a member in the Estate Planning & Probate Department at Mc-
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enerally, most couples, whether traditional or non-traditional, have similar basic estate planning goals, which are to reduce estate taxes, avoid probate and make sure their assets go to their intended beneficiaries.
use a first marriage distribution plan. They execute simple wills that leave everything to each other and then to their joint children. The flaw in this plan is that there is usually nothing to prevent the surviving spouse from executing a new will that leaves everything only to his or her children.
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OPPOSITE-SEX MARRIED COUPLES COUPLES WHO CHOOSE WITHOUT CHILDREN NOT TO MARRY Most individuals die Older couples may not MISSIA without drafting even a want to risk their assets VASELANEY simple will. Consequently, should the other spouse states had to enact laws to govern enter a nursing home. A prenuptial the distribution of these individcannot prevent a spouse's assets uals' property. Intestate succesfrom being subject to health care sion statutes vary by state. In costs. They also may not want to Ohio, a married individual's lose Social Security or other benefits property will pass 100% to the surthat may result should they remarry. viving spouse if there are no children, so "he who lives longest SAME SEX COUPLES wins" (or actually his side of the Many same-sex couples feel family wins). the disadvantages they suffer under the law are the direct result REMARRIED COUPLES of their same-sex status. However, Many remarried couples try to the lack of rights and privileges is
not derived from their same-sex couple status as much as it is from the fact that they are unmarried. In most states, same-sex couples are prevented from marrying, and thus tax benefits and priority rights do not exist. Even if a state allows marriage, it will not be recognized for most federal law purposes. Adult adoption is used by some same-sex couples as an estate planning tool. One partner may adopt the other, thereby making the adoptee an heir-at-law of the adopting partner. Such adoption is irrevocable. The issues above are a small sampling of concerns that different types of couples may face as they contemplate marriage, their future and the intended distribution of their assets. An estate planning attorney should be contacted to help chart the proper course.
Missia H. Vaselaney is a partner with Taft Stettinius & Hollister LLP. Contact her at (216) 706-3956 or mvaselaney@taftlaw.com.
Jeffrey P. Consolo
Chair, Estate Planning and Probate
Brian J. Jereb Bernard L. Karr Michael G. Riley Roger L. Shumaker
Take care when choosing trustees
By TINA MYERS
All of our Cleveland Estate Planning members have earned the Best Lawyers� distinction.
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McDonald Hopkins LLC 600 Superior Avenue East, Suite 2100, Cleveland, OH 44114 216.348.5400
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hen creating a trust, choosing a trustee is often not given the careful consideration it should. This decision cannot be made under pressure, when you're sitting across the table from the drafting attorney. One's first instinct is normally to name a family member, relative, close friend or business colleague. However, there are many factors to consider when choosing the most appropriate individual trustee. There also are times when using co-trustees or a professional trustee may better protect the trust's integrity. When choosing an individual trustee, consider the individual's ability to make financial decisions, to understand and follow the trust instrument, and to accept fiduciary liability. An individual trustee's financial ability doesn't require investment experience, but the person must be familiar with the Prudent Investor Rule in the state and should be able to make prudent
financial decisions. The lacking in any of these individual trustee is often characteristics, then given the ability to hire naming co-trustees could professional investment be an effective way to advisers, but cannot balance the lack of skill. blindly rely on the advice But, be careful since this they provide. The trustee would require "co-responwill have the ultimate resibility" in managing the sponsibility and should trust. If one trustee TINA MYERS conduct adequate due doesn't uphold his fair diligence in selecting professional share of the responsibility, the advisers. other co-trustee must make up An individual trustee should for the shortfall. also understand the underlying There are many benefits of legal concepts. This will require utilizing a professional trustee some knowledge of the applicable that an individual trustee cannot state's governing trust law. If the provide. Among these are trust individual doesn't have the reqcommittee oversight, manageuisite understanding of the ment policies to assure trustee legal issues, they should recogcompliance, longevity and the nize when they need to seek the ability to make good on losses in counsel of an attorney. case of a breach of fiduciary duty. Does the individual trustee Choosing the right trustee is not understand the concept of fiduan easy decision. But failing to ciary liability and that this entails select the correct trustee can personal liability? Will the benethwart the whole purpose of a ficiaries be able to recover damages well-drafted trust. from the trustee, personally? Not Tina Myers, CPA, is tax manager for likely, unless that individual Zinner & Co. LLP. Contact her at trustee is wealthy or has the (216) 831-0733 Ext. 108 or appropriate insurance coverage. tmyers@zinnerco.com. If the candidate for trustee is
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Do you have someone Special needs trusts protect the future relying on you for care? Tool can help stretch resources
I
Everyone should have a living f you are a caregiver, you are will and a durable power of attornot alone. According to a 2009 ney for health care. Make copies study, "more than 65 million of these documents to distribute people, 29% of the U.S. poputo attorneys, financial planners, lation, provide care for a chronifriends and relatives. Visit our cally ill, disabled or aged family website www.hospicewr.org for member or friend during any copies of these documents. given year." At Hospice of the Have you helped your loved Western Reserve, not only do we one review his or her will lately? provide exceptional services to Wills should be each of our serireviewed after As a caregiver, you ously ill patients, every life milewe also assist can help your loved stone. Help them their caregivers. one create an estate check insurance Caregivers policies and often struggle plan. investments to to manage jobs, ensure that the school, children and a beneficiaries chosen years ago are myriad of other responsibilities, still appropriate -- beneficiaries along with the stresses associated can be changed, without cost, at with caregiving. While providing any time. for the physical, social and spiriAs part of our extraordinary tual needs of their loved one is continuum of care, Hospice of the consuming, caregivers should not Western Reserve offers patients and forget to also help make health families access to a team of volcare, financial and legal plans unteer attorneys. These dedicated that will reduce future stress. individuals help families prepare More than 60% of Americans these vital documents, confidenbelieve that our loved ones will tially and free of charge. meet our end-of-life wishes. However, fewer than 20% actually have For more information about Hospice of discussed their wishes with anythe Western Reserve services, call (800) one. As a caregiver, you can help 707-8921. To download a copy of our your loved one create an estate caregiver guide, A Companion Guide plan that includes end-of-life When Facing a Serious Illness, visit choices about health care as well www.hospicewr.org. as financial considerations.
for beneficiaries
By DAVID MYERS
A
Special Needs Trust (SNT), sometimes called a "supplemental needs trust," is a generic term for a trust designed to supplement the means-tested government benefits of a beneficiary with a disability. By maintaining eligibility for cash income and health insurance, a family may stretch its collective resources to care for the individual with disabilities over time. What would prompt someone to establish a SNT? See if you recognize your client: A father is planning his estate and you discover he has a 9-year old with cerebral palsy or a 22year old who is bipolar; a successful plaintiff in a personal injury action has a permanent disability and will lose his employer-
provided health insurance; a spouse or child in a divorce case has multiple sclerosis or severe attention-deficit/hyperactivity disorder (ADHD), and support payments will reduce his or her SSI; an aged or disabled widow is trying to become eligible for Medicaid. Not all benefits are "meanstested." Medicaid and SSI are, but Medicare and Social Security disability or retirement are not. SNTs can be inter vivos or
testamentary, stand-alone or part of a will or trust. They may be funded with the disabled individual's money (so-called "d4A" trusts or "Medicaid Payback Trusts" or the local CFMF Pooled Trust). At his or her death, any remaining funds go to reimburse the state. A third-party SNT is typically set up by a parent or grandparent to hold a disabled beneficiary's share of the estate. Properly done, there is no repayment to the state when the beneficiary dies. Finding the right Special Needs Trust can preserve government benefits so that the beneficiary experiences a net gain and the funds (whether his own or from another person) make a real difference in life, instead of simply relieving the government of its responsibility to pay benefits.
David Myers is a principal with Hickman & Lowder Co., LPA, with offices in Cleveland and Sheffield Village. For more information on estate planning for individuals with disabilities, visit Hickman-Lowder.com.
PRACTICAL AND EFFICIENT SOLUTIONS TO ACHIEVE YOUR FAMILY AND BUSINESS OBJECTIVES
ESTATE PLANNING | CHARITABLE GIVING TRUST & PROBATE ADMINISTRATION BUSINESS SUCCESSION PLANNING ASSET PROTECTION PLANNING PROBATE LITIGATION
Philanthropy: Shaping the Future of Medicine
For 90 years, philanthropy has helped make Cleveland Clinic a world leader in healthcare. By working with allied professionals, Cleveland Clinic's gift planning team helps supporters achieve their philanthropic goals. Together, we are securing Cleveland Clinic's future through gift planning.
GARY L. DINNER, CHAIR BRENT E. CULHANE ROBERT S. FROST ERICA E. MCGREGOR SUSAN L. RACEY RENNIE C. RUTMAN JEFFRY L. WEILER
216.696.2758 216.696.5865 216.696.3289 216.696.4224 216.696.3651 216.696.4749 216.696.5044
To speak with a member of Cleveland Clinic's gift planning team, call 216.444.1245, visit clevelandclinic.org/giving or email giftplanning@ccf.org. Same-day appointments available.
1150 HUNTINGTON BUILDING | 925 EUCLID AVENUE CLEVELAND, OHIO 44115-1414 PHONE 216.592.5000 | FACSIMILE 216.592.5009 WWW.TUCKERELLIS.COM
Crain's Cleveland Business Custom Publishing
S-16 NOVEMBER 14 - 20, 2011
ESTATE PLANNING
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ESTATE PLANNING TACTICS
Settlor's trusts are relevant with or without estate tax
By RENNIE RUTMAN
divorcing spouses and judgment creditors. However, assets that pass to beneficiaries via a settlor's trust generally can be used for the benefit of the beneficiaries while not exposing the assets to the claims of the beneficiaries' creditors. Assets that are payable through a last will and testament to a beneficiary who is not yet age 18 generally must be managed by a probate court-appointed guardian. When the beneficiary turns 18, the inheritance generally must be paid outright, in a lump sum, to the beneficiary -- irrespective of whether the beneficiary has the financial savvy or life experience to effectively manage the inheritance. However, assets that are payable to a beneficiary through a settlor's trust can be privately managed by a trustee. This avoids the need to have a guardian appointed if the beneficiary is not yet 18, and permits the settlor to delay the distribution of the inheritance to the beneficiary until whatever age the settlor deems appropriate. Suffice it to say that whether to use a trust in an estate plan is a decision that should be made after consideration of many factors, many of which are not tax related.
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ow that the federal estate tax exemption is $5 million and the Ohio estate tax exemption, currently $338,333, is scheduled for repeal in 2013, those with net estates valued at less than $5 million may wonder whether there is any real reason to utilize trusts in their estate plans. In many situations, there continues to be compelling nonestate-tax-related reasons for including a typical revocable trust in one's estate plan. Such reasons include: Assets that are in the settlor's trust at his death generally can pass to the settlor's beneficiaries free from attachment by the settlor's creditors. This creditor protection is not available for inheritances passing to beneficiaries by last will and testament. Assets that are in the settlor's trust during his incapacity usually can be privately managed by a successor trustee (of the settlor's choosing) without requiring probate court involvement. Assets owned individually during incapacity often must be the subject of a probate court guardianship
Results. Period.
proceeding. Similarly, assets that are in the settlor's trust at his death usually can be privately administered and/or managed for the settlor's beneficiaries with no need to involve a probate court. Assets owned individually when one dies and that pass via last will and testament to beneficiaries often must become the subject of probate court proceedings. Probate proceedings, which are often costly and time consuming, necessitate the reporting of a great deal of personal information (including information concerning the incapacitated/ deceased person, his family, his named beneficiaries, his assets and his liabilities), which becomes part of the public record. The use of a trust can avoid most, if not all, of these disadvantages. Assets that pass to beneficiaries through a last will and testament are generally subject to the beneficiaries' creditors, including
Rennie Rutman is an attorney at Tucker Ellis & West LLP. She is an Ohio state board certified specialist in estate planning, trust and probate law. Contact her at (216) 696-4749.
Collect digital asset information as part of the estate planning process
By CRISTIN R. SNODGRASS
A BANK INVESTED IN MORE THAN YOUR BALANCE.
At Huntington, we do things a little differently. Okay, a lot differently. For starters, we reinvest your money right back into the community. Helping businesses open. And neighborhoods grow. We staff our call centers locally and service all our loans right here. Creating jobs and opportunities for our neighbors. So if you're ready for a bank that's interested in more than your balance, call Chris Cwiklinski at 216-515-6547 or Era Griffin at 216-515-0259.
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Member FDIC. �� and Huntington� are federally registered service marks of Huntington Bancshares Incorporated. Huntington.� Welcome.TM is a service mark of Huntington Bancshares Incorporated. �2011 Huntington Bancshares Incorporated.
echnological advances in the last 30 years have dramatically impacted all areas of our lives. Practically everyone has gone digital, including the older generations, and so have their assets. Digital assets include assets and data someone owns, which are electronically created and stored on computers and the Internet. Digital assets may leave a paper trail or exist only electronically. Determining their existence and accessing them is the estate planner's challenge in the event of a client's death or incapacity. Tax returns, credit reports and account statements can help identify financial digital assets. Any device involved must be accessed first -- whether it's a smart phone, desktop, laptop or tablet -- and access could be contingent upon the device's ownership. Passwords may also pose a hurdle, including passwords to start a device and those used to access accounts, including email,
financial, social networking, e-commerce, and online data and media storage. While attempts can be made to access the accounts without a password, failed attempts can destroy or corrupt any information. A better route is engaging an electronic forensic specialist. To help avoid the digital hunt, collection of digital asset information and planning for fiduciary access to such information should be incorporated into the estate planning process. Clients can create a physical or electronic list of all accounts and passwords. The lists can be stored
in a home safe, a safety deposit box or in a paid or personal electronic password summary account. It's important to ensure, however, that someone else will have access to them through a specific designation when a bank or company is involved. If another password is needed to access the list, it can be kept with the original estate planning documents. The documents themselves should define digital assets, address fiduciary access to them during incapacity and after death, and direct their disposition. Issues related to digital assets are just beginning to surface. Estate planners who incorporate them in the discovery and drafting process for their clients now can help their clients' families have an easier experience later.
Cristin R. Snodgrass, J.D., is a relationship manager for Key Private Bank. Contact her at (216) 828-7327 or Cristin_R_Snodgrass@Keybank.com.
Crain's Cleveland Business Custom Publishing
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NOVEMBER 14 - 20, 2011
S-17
ESTATE PLANNING TACTICS
Selling your art and collectibles
By JAMES CORCORAN
The Trusted Advisors' Choice for Donor Advised Funds
True independence for your charitable estate planning. Open investment architecture. Expertise with non-publicly traded assests. Unlimited succession. American Endowment Foundation 1-888-440-4233 I www.AEFonline.org
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any clients who are downsizing their residences have works of fine and decorative art, furniture, antiques, books, jewelry, and sterling silver flat and hollow wear, etc. that they want to sell. Space considerations often are primary in making decisions to sell. Another consideration is that clients' children and other heirs have no interest in the property and would prefer not to be burdened with it as an inheritance. A third reason for considering the sale of high value personal property is to become more liquid in the current economic environment.
In the course of my 35 years as a certified appraisal professional, I have become acquainted with the owners/managers of more than 80 reputable auction houses around the world. We have achieved notable success for clients by selecting the most appropriate and specialized auction house for the sale of each item of property brought to us. For example: A pair of 1973 Israeli limited edition prints. Local auction estimate $400 to $600. Sold at an auction we selected for $7,700 net to client. A French school of Paris (1960s) painting. Estimated locally at $2,000 to $3,000. Sold for $12,500 net to our client in an out-of-town auction. A set of watercolors by a deceased California artist. Local estimate $1,000 to $1,200. Sold elsewhere for net $10,200 to our client. Neither my firm nor I personally has any conflict of interest in providing this highly valuable service. We never buy clients' property. We merely direct the client to the best auction (or gallery) for the sale of their items at the highest price possible. We frequently handle the entire process from our receipt of the property: Locating the best market
Negotiating with the auction house Insuring the property Packing and shipping the property to the auction house Insuring the property from the time we receive it until the time of final sale Taking necessary legal steps to protect the client's title to the work prior to the sale In a period when a wide variety of art, antiques and collectibles are coming to market, Corcoran Appraisal Group provides a valuable service to obtain the highest possible prices for the sale of client property.
Supporting and Realizing Value
Private Client Services
James Corcoran is a Harvard Law School graduate, and a certified member of the three National Personal Property Societies. Corcoran Appraisal Group has been active professionally for 35 years. Contact him at (216) 767-0770 or CorcoranAppraisals @gmail.com.
Business valuation Sale advisory and succession planning Discount studies (FLP/LLC) Tax controversy and expert testimony Real estate appraisal Forensic accounting Complex illiquid financial instrument valuation
+1.216.373.2998 rriebe@srr.com www.srr.com
Radd L. Riebe, JD, ASA
CHARITABLE GIVING
Philanthropy as a family teaching tool
By LAURA J. MALONE
F
or many families, the idea of being a "philanthropist" has been associated with the abundance of wealth. However, in the modern age of charitable vehicles like donoradvised funds and giving circles, everyday families can become philanthropists. Even more important is that they can use these vehicles to make philanthropy a family affair. Statistics show that roughly two-thirds of all wealth transfers fail. In many cases, these families got so concerned with protecting their financial capital that they neglect to focus on the values of the family that are typically expressed though social, human and intellectual capital. Philanthropy can make us feel good and create a positive effect on the world around us. However, most people underestimate how philanthropy can have the capacity to: teach younger generations money and wealth management skills, decision making and responsibility for themselves and the global community. become a conduit for conversations about wealth/money and
their meaning in the lives of all family members. open deeper conversations about values and what matters most to individual members. become a bridge/gift to the next generation to nurture their values and vision. become the glue that holds a family together in good times and bad. Today's charitable vehicles make it easier to prepare your family for wealth without exposing them to all of the wealth. They make it easier for parents to talk about the time, talent and treasure they share with charitable organizations and express why those organizations are important to you. Furthermore, they can support the cultivation of the rest of the family's charitable interests. While it is better to begin these teachings early, we have seen through our donor-advised fund clients that it is possible at any age. The holidays can be a great time to start since family and giving naturally come together.
Estate Planning
What do You value?
Retirement Planning Tax Planning Business Succession Planning
Whether it's retiring in comfort, educating your children or grandchildren or helping your loved ones, being able to live those values and fulfill your dreams lies in setting goals and carefully planning a course of action. Call 216.241.3272 to talk to a Meaden & Moore professional about protecting what you value.
Laura J. Malone is director of gift planning for the American Endowment Foundation. Contact her at 877-599-8903 or lauramalone@aefonline.org.
meadenmoore.com
Crain's Cleveland Business Custom Publishing
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ESTATE PLANNING
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CHARITABLE GIVING
Help us connect people to the wonders of the universe
BETHEFUTURE
To learn more about estate planning and life income gifts to the Museum, contact Sheryl Hoffman, Director of Major & Planned Gifts at (216) 231-4600, ext. 3310 or shoffman@cmnh.org www.cmnh.org/site/GiftGuide.aspx
Maximize the impact of giving through retirement plans
By PATRICIA FRIES
O
POWER OF ATTORNEY? YES.
YOUR TYPICAL LAWYERS? NO. Because we're not what you think of when you think about lawyers. You'll want us to represent you because we're not only trust and estate experts but we're also approachable. We like to say, we're "likable lawyers." Imagine that.
of your retirement plan account. Charitable gifts of retirement ne of the easiest and plan assets at the participant's most "tax-wise" ways to death avoid both income and make a gift to estate tax to heirs. When University Hosa participant makes a pitals, or another charity, retirement plan gift, the is by using your retirement charity receives the gift plan assets. In spite of the directly from the qualieconomic downturn, fied plan or IRA trustee Americans are building without going through large retirement plan balthe probate process. This ances, mainly through alleviates the delays and the use of employer-spon- PATRICIA FRIES costs associated with prosored 401(k) plans. bate, allowing the charity Almost all retirement plans to receive the gift more quickly have yet to be taxed, and considand cost-efficiently than if it had erable taxes will result when been made from an estate. retirement plan assets are used or distributed directly to heirs. HowDIRECT IRA ROLLOVERS ever, if these retirement plans are TO CHARITY given to a qualified charitable organization, they are received in Congress has reauthorized legfull, with no tax due, resulting in islation that allows you to make a more significant gift to charity. lifetime charitable gifts from your IRA accounts during 2011 without incurring federal income tax RETIREMENT PLAN on the withdrawal. The IRA charDESIGNATION TO CHARITY itable rollover provides you with You can leave your legacy by an excellent opportunity to make naming University Hospitals, or a gift during your lifetime from another charity, as a beneficiary an asset that would be subject to
multiple levels of taxation if it remained in your taxable estate. IRA CHARITABLE ROLLOVER REQUIREMENTS You must be age 70� or older at the time of gift Transfers must be made directly by an IRA administrator to the charity Gifts must be outright IRA CHARITABLE ROLLOVER BENEFITS Counts toward your required minimum distribution Excluded from your gross income as a tax-free rollover Gifts up to $100,000 The extension of the IRA charitable rollover will expire on Dec. 31. Act now to take advantage of this limited charitable planning opportunity.
Patricia Fries, Esq., MBA, is director of gift planning for University Hospitals. Contact her at (216) 844-0430.
Not all charitable gifts created equal
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JAMES A. GOLDSMITH
jgoldsmith@ulmer.com 216.583.7114
deferred gifts that involve a direct transfer of assets. Examples he words "charitable include charitable gift annuities, giving" often evoke charitable remainder thoughts of tax annuity trusts, charitable deductions, but remainder unitrusts and it's not always that simple retained life estates. The with deferred giving. common thread among Some deferred gifts are these gifts is that an asset revocable, meaning you is irrevocably transferred can revoke the gift at any to a charitable organizatime, while others are tion, often making the irrevocable, meaning per- JAMES HICKEY transaction eligible for manent. When considering an immediate income a deferred gift, it's important to tax deduction. In many cases, understand that some gifts will these gift options also provide provide an immediate income lifetime payments to the donor tax deduction, while others will and other beneficiaries, giving provide tax benefit to your estate. you a two-fold benefit.
By JAMES R. HICKEY
that allows you to change your mind at a later date. There are several revocable gift options available including will bequests, estate notes, life insurance beneficiary designations, pay on death/transfer on death assets, and more. The revocability of these charitable gifts negates the opportunity for an immediate income tax charitable deduction. However, deductions are usually available to the donor's estate as the gifts mature. Most importantly, talk to your tax professional and charitable gift adviser to make sure your gift meets your goals.
TAX BENEFITS NOW
TAX BENEFITS LATER If you are uncomfortable with letting go of an asset now, you may appreciate a revocable gift
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If a positive tax benefit on your current year taxes is your goal, consider irrevocable
James R. Hickey, CFRE, CAP, is gift planning director for Ohio Presbyterian Retirement Services Foundation, serving Breckenridge Village. Contact him at (440) 942-4342 ext. 1506.
Crain's Cleveland Business Custom Publishing
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ESTATE PLANNING
NOVEMBER 14 - 20, 2011
S-19
CHARITABLE GIVING
Establish a legacy gift and guarantee income with CGA
By SHERYL HOFFMAN
Experienced Estate Planners
Squire Sanders' private client and estate planning lawyers advise on the personal, financial and estate planning needs of clients around the world. In this highly personalized service area, our lawyers have the experience to deftly handle sensitive situations.
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n July 1, the American Council on Gift Annuities announced an increase in Single Life and Two Lives-Joint & Survivor gift annuity rates. The Cleveland Museum of Natural History (CMNH) has incorporated the recommended increases for all new Charitable Gift Annuities (CGA) made to the Museum. A SHERYL Charitable Gift HOFFMAN Annuity is a wonderful way to create a legacy gift while guaranteeing fixed payments to you for life in exchange for your gift of cash or securities. A charitable gift annuity could be right for you if: You want to maintain or increase your income You want the security of fixed, dependable payments for life You want to save income taxes or capital gains taxes
You would like income that may be partially tax-free You are considering a gift amount of $10,000 or more To establish a CGA, a donor makes an irrevocable gift of cash, securities or other property to CMNH. In exchange, CMNH pays a fixed amount each year for the rest of the donor's life. When the gift annuity ends, its remaining principal passes to CMNH. A CGA can be established for a Single Life or a Two Lives-Joint and Survivor. In the case of a Two Lives CGA, the surviving annuitant will continue to receive payments for the remainder of his/her life. For example, a Two Lives-Joint & Survivor CGA of a minimum $10,000 gift will earn a couple with younger age 82 and older age 84 a rate of 6.9% for the life of the annuitants. The information below illustrates the benefits
of a $10,000 CGA for this couple. Charitable deduction: $4,321 Annual payment: $690 Tax-free portion: $525.78 Ordinary income: $164.22 After 10.8 years, the entire annuity becomes ordinary income. Partial payments for the year of gift will depend on the timing of your gift. CGA rates, payments, charitable deductions and tax free portions are based on the age of the annuitant(s), the timing of the gift and the amount of the gift.
Squire Sanders refers to an international legal practice which operates worldwide through a number of separate legal entities. Please visit www.ssd.com for more information.
Sheryl Hoffman is director of major & planned gifts for The Cleveland Museum of Natural History. Contact her at (216) 231-4600, ext. 3310 or shoffman@cmnh.org. Read more about charitable gift annuities and run calculations on rates and payments at www.cmnh.org/site/GiftGuide.aspx.
HOW AN ANNUITY WORKS
By KERRY MINK WRAY
A
charitable annuity allows individuals to support a charity while receiving a cash reward for years to come. It is a great way to give a donation and pay yourself back over time, while reducing your tax bill. For example: Mary, 68, provides a onetime cash donation of $5,000 to the charity of her choice. Her Annuity Rate of Return, determined by the American Council of Gift Annuities based on her age, gift amount and other factors, is 5.5%. The rate is fixed over her lifetime. Her tax deduction the first year is $1,847. She will receive $275 every year ($180 tax-free, $95 ordinary income). Annuities provide a competitive and reliable rate of return and allow donors to support their favorite charities at the same time.
Donor-advised funds: same benefit to the charity, bigger tax benefit for you
By MATTHEW S. OLVER
Go for it. We've got your back.
At Roetzel, our attorneys are like our clients entrepreneurial, innovative and results oriented. Just ask Steve Cox and Al Salvatore.
I
Kerry Mink Wray, JD, is development director of the Benjamin Rose Institute. Contact her at (216) 373-1607 or kmink@benrose.org.
*Calculations are for illustrative purposes and should not be considered legal, accounting or other professional advice. Actual benefits may vary depending on the timing of the gift.
says Kara Downing, portfolio manager at Spero-Smith Investf you itemize deductions on ment Advisers, Inc. When you your tax return, one opportudonate an asset to your fund, the nity to harvest some tax sponsoring organization liquisavings is through charitable dates it and transfers the proceeds donations. Generally, individuals into investments selected by the deduct the annual cash contribudonor from within the donortions they make to non-profit advised fund's available options. organizations. Donor-advised The donor can use these funds funds offer you an easy way to reto make cash gifts to charitable move assets from your taxable esorganizations over several years. tate and get a bigger income tax When ready to make a donation benefit today but maintain flexito a qualifying charity, the donor bility regarding sends a grant who receives the request to your The donor can use donation, how fund's sponsoring these funds to make much and when. organization, A donorcash gifts to charitable which then advised fund sends a check organizations over is particularly directly to the several years. useful when you charity indicating have a spike in that it is from income (e.g. business sale, the donor's account. options exercise, bonus), if you The charitable tax deduction is believe your future tax rate will taken when the assets are congo down (e.g. after retirement) or tributed to the donor-advised if you believe Congress will fund, not when the check is sent reduce the charitable deduction. to the charity. The tax benefit can be magniMany community foundations, fied by donating appreciated financial institutions and some assets held more than one year, public charities sponsor donoras you may be able to deduct the advised funds. Consult your qualfull market value of the asset and ified tax professional to help you avoid paying the capital gains tax determine what makes the most you would have paid by selling sense given your goals and finanthat asset. cial situation. "A donor-advised fund is similar to a private foundation Matthew S. Olver, CFP, is senior vice but requires less money, time, president for Spero-Smith Investment legal assistance and administraAdvisers, Inc. Contact him at (216) tion to establish and maintain," 464-6266 or matt@sperosmith.com.
We focus on maximizing opportunities and minimizing risks so Steve Cox and Al Salvatore
ralaw.com/wealth_transfer
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ESTATE PLANNING
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CHARITABLE GIVING
Stewardship plays critical role in philanthropy
Building strong relationships can make a difference
By TODD S. POLIKOFF
A
t minimum, all donations stem from someone asking, whether through direct mail, phone banks or direct solicitation. "Major gifts" require the additional element of an organic belief by the donor in the mission and vision of the organization. A major donor's support of the organization must transition from a cerebral thought process to an emotional response. The most effective way to make the migration from the head to the heart is through a comprehensive donor stewardship plan. At the Jewish Federation of Cleveland, donor stewardship is
defined as the development of an ongoing relationship with donors, which includes recognizing them for their contributions, ensuring that the gifts are used in accordance with the donors' wishes, reporting to donors what has been accomplished, heightening their interest and involvement, and soliciting additional and larger donations. Unlike cultivation, stewardship deals with the non-gift aspects of the donor relationship and has no set timetable (i.e. annual or capital campaign drives). Furthermore, the Jewish Federation of Cleveland's stewardship plan is multi-generational and engages entire families in the philanthropic process. The organizational benefits of a stewardship plan go beyond increased revenue. Proper stewardship reduces costs as it is less expensive to steward a current donor than to acquire a new
one at the same level. The donor stewardship process also transforms donors into force multipliers for the organization. Ultimately, the Jewish Federation of Cleveland's stewardship plan is a strategy aimed at mitigating the impact of the multiple economic and demographic challenges facing the non-profit sector. Many major donors today are exhibiting an increased level of discretion in their philanthropy. This places an imperative on an organization's ability to assert its relevance in the eyes of the donor. Donor stewardship plans are the most effective way to ensure that your organization remains a top philanthropic priority for your most supportive donors.
Retained life estates allow donors to bring home and heart together
By AMANDA STEYER
Todd S. Polikoff is a senior development officer at the Jewish Federation of Cleveland. Contact him at (216) 593-2905.
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home often is a family's most significant asset. Incorporating a home into a charitable giving plan can benefit the family, their heirs and a favorite charity. However, many do not know they can make a gift of their residence now and continue to live in it for the rest of their lives. With a gift of a retained life estate, the owner of a residence or farm irrevocably transfers ownership of the property to a favorite charity, while retaining the right to live on the property for life, a set term of years, or a combination of the two. The residence does not need to be the principal residence but may be, for example, a vacation home. The donor retains the right to live on the property during that time and continues to be responsible for all routine expenses, such as maintenance, insurance, landscaping and property taxes. When the retained life estate ends, the designated charity then can use the property or the proceeds from the sale of the property for the directed purpose. This gift plan entitles the donor to an immediate charitable income tax deduction for a portion of the appraised value of the property.
Many do not know they can make a gift of their residence now and continue to live in it.
With October's 7520 rate of 1.4%, a retained life estate is ideal. The retained life estate not only removes the residence from the donor's taxable estate but also relieves the heirs or estate of the burden of inheriting the home and arranging for a sale.
The highest tax deduction is produced when applicable federal rates are low. With October's 7520 rate of 1.4%, the time for a retained life estate couldn't be better. Some individuals may be hesitant to gift their home due to the uncertainty of the later years. What if at some point they want or need to move into a nursing
home or assisted living facility? The retained life estate provides flexibility with alternative options to consider. If they later decide to vacate the property, they may rent, gift or sell their interest to family, a third party or the charity. The retained life estate not only removes the residence from the donor's taxable estate but also relieves the heirs or estate of the burden of inheriting the home and arranging for a sale. Ultimately, the donor can make a significant gift to a favorite charity during his or her lifetime without in any way altering standard of living or cash flow. Discussions between clients and their advisers are always recommended. With the right guidance, the planning and implementation of a gift of a home can be a satisfying and rewarding decision for families and charities. Cleveland Clinic's gift planning professionals would be pleased to assist with those conversations if there is interest in supporting its medical mission.
Amanda Steyer, Esq., is assistant director, gift planning, institutional relations and development at Cleveland Clinic. Contact her at (216) 636-0117 or giftplanning@ccf.org, or visit clevelandclinic.org/giving.
Crain's Cleveland Business Custom Publishing
NOVEMBER 14 - 20, 2011
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CRAIN'S CLEVELAND BUSINESS
37
Housing: Economy still needs to recover
continued from PAGE 1
HOME MARKET PERKS UP
According to data from the Northern Ohio Regional Multiple Listing Service (NORMLS), the number of area residential properties under contract and sold are up over this time last year, though still are down from the year's peak in May.
Reform: Some legislators receptive to reform ideas
continued from PAGE 1
Month
June 2011 March 2011
Under contract
2,932 3,277 3,159 1,791 2,405
Sold
3,033 3,481 2,645 2,476 2,613
MARC GOLUB
September 2011
December 2010 September 2010
business going two years ago. Now it's not artificial. I've seen a steady increase in closings the last two months." She credits the pickup to sellers who don't want to go through another winter with a home for sale. And Mrs. Torchia is not alone in seeing the market improve, as others expect higher monthly home sales compared with a year earlier to continue through the end of 2011 and to set a good foundation for a housing market recovery -- albeit a fairly weak one. Data from the Northern Ohio Regional Multiple Listing Service, the source real estate agents and consumers use to share for-sale home information, support Mrs. Torchia's optimistic view. NORMLS reports the number of residential properties under contract in its 15county coverage area was up 22% in September, to 2,932 from 2,405 in September 2010. Likewise, the number of sold listings climbed 18%, to 3,033 this September from 2,583 a year ago. Although some of those contracts may not close, Carl DeMusz, CEO of NORMLS, said they indicate the rise in sales seen this summer may continue, although at a slower pace than the busy warm-weather months. All in all, what began as a dreadful year is becoming less so as the year progresses. Year-to-date sales through September, the most recent reporting period available, were down just 3% from the first nine months of 2010. "I feel we're starting to see a recovery," Mr. DeMusz said. "When I look at the trend, I think we are pretty much improving. We've seen the bottom and are on the way up."
Better, if not great
While many brokers agree activity is up, the bruising downturn has others less willing to call the bottom, although the word "optimistic" is starting to work its way back into their vocabularies. The other evidence of improvement is declining inventory, which NORMLS reports as new listings. Those listings, through the first nine months of 2011, were down 12%, to 62,164 from 70,502 a year ago. Dennis Steed, broker and co-owner of ReMax Crossroads in Strongsville, said he's encouraged by that statistic, which is better -- if not great. "Yes, it's 10 months of inventory," Mr. Steed said. "When we get to six months of inventory we will be back to what experts call a balanced market. We have seen as much as 18 months of supply at times since this downturn has started." At Howard Hanna, sales are surpassing new listings coming into offices at a two-to-one rate, said Howard "Hoby" Hanna, president of Howard Hanna Ohio. "Fewer people believe it's a good time to put a house on the market," Mr. Hanna said. "But we are seeing bidding battles on houses again. If you have a house that is done right, in the right neighborhood without a lot of for-sale signs, we are seeing strong sales." However, none of that means it is time to break out champagne. Stability looks good compared to the past few years of the downturn, but offers little reason to celebrate. "I think this is what we will look at in housing for a long time," Mr.
Hanna said. "Unfortunately, we won't see big jumps in appreciation."
It's all about the deal
Aiding sales are interest rates at near-record lows of 3% on 30-year loans and big drops in values of some homes. Zillow, the online realty data provider, reports 32% of all sales in the first half of 2011 were below the prior purchase price in the Cleveland-Elyria-Mentor Metropolitan Statistical Area. Cash buyers snapping up bargains also are a factor in the market. "The only buyers that are consistently out there are first-time home buyers," said David Sharkey, president of the Progressive Urban Real Estate brokerage of Cleveland. "Existing homeowners are comfortable staying where they are. It's a market driven by fear and has become less about the house than about the deal." From here, the market will improve markedly only if the local economy rises and the region starts gaining jobs and population, Messrs. Sharkey, Hanna and others say. For sellers of real estate, the only answer now will be to go back to fundamentals. "It's down to aggressive pricing and exceptional showmanship now," John Vrsansky Jr., owner of On Target Realty in Rocky River, said. And when he says aggressive, he means aggressive. "I've been in the business 38 years," Mr. Vrsansky said. "Prices for bungalows in Parma are $40,000 to $50,000 now, just like when I started."
Issue 2, and we're going to get right back to it." Leaders of GCP, the other regional chambers of commerce around the state and the Ohio Chamber of Commerce will be meeting this week to map a unified legislative strategy, said Carol Caruso, GCP's senior vice president for advocacy. The business groups banded together last year as the state budget crisis loomed and last December issued a report, "Redesigning Ohio," that was described as a road map for long-term change of government and taxation in the state at a time of unprecedented fiscal crisis.
time to retreat too much," she said. "But obviously, the political realities are something we have to be very much aware of." Ms. Caruso said she is encouraged about the prospects of making some headway on the reforms the chambers have identified because polling on Issue 2 showed support for some of the measures in SB 5. One of those key issues that voters appeared to support is changing state law to give school districts more flexibility in staffing. Current state law requires districts to adhere to a strict seniority system that protected older teachers and forced districts to lay off talented younger faculty.
"We just hope the momentum continues because the state just cannot afford" the current level of spending.
� Carol Caruso, senior vice president for advocacy, GCP
Ms. Caruso said she expects she and her colleagues will identify a number of issues to pursue with the General Assembly. "There are several things the business community cares an awful lot about," she said. "It's just, how do you do it and when do you do it? We just hope the momentum continues because the state just cannot afford" the current level of spending.
Sizing up the bites
Likewise, Ms. Caruso said she hopes the Legislature will renew the effort to reduce what she described as "the disparity between what private and public sector people pay in terms of health insurance and retirement. "There was a lot of support for looking into that as well," she said. The groups may press lawmakers for ways to encourage communities and school districts to cut costs by collaborating on services or merging. "We will continue to pursue everything in `Redesigning Ohio,'" she said. "It's just a matter of what kind of a bite you take and the timing." She said she's had a good reception from some legislators on education issues. Mike Dittoe, director of communications for Ohio House Speaker Bill Batchelder, wasn't ready to talk about specifics, but he did suggest that parts of SB 5 could be revived. "The governor and the speaker are saying they are going to take a breather and recalibrate and see what we need to do next," he said. "If we do take up portions of SB 5, it certainly is not going to be something we take lightly."
No time to retreat `too much'
Many of the chamber groups' recommendations for public employment reforms ended up in Senate Bill 5, which, as Issue 2, was resoundingly defeated 61% to 39% last Tuesday, Nov. 8. SB 5 would have limited the collective bargaining rights of state and local public employees, including teachers, police officers and firefighters. It would have expanded a no-strike law to all 360,000 public employees in the state and required them to pay at least 15% of the cost of their health care benefits and 10% of their pension costs. Ms. Caruso said she hopes the business groups can move the Legislature to repackage some of those elements into new legislation. "I just think that this is not the
Metro: System sees building network as key to sustainable future
continued from PAGE 3
the offering than it paid on the debt. "It was my intent to make (this bond issuance) as much about building our ambulatory network as possible," said Mr. Moran, adding that the health system has yet to buy land for additional health centers. It's expected that the bond proceeds will finance at least two more community health centers, which will be similar in size and scope to the 57,600-square-foot building slated for construction next year at Interstate 71 and Pearl Road in Middleburg Heights. The center will offer primary care, urgent care, physical and occupational therapy and other specialty services. Mr. Moran wouldn't disclose the areas MetroHealth is considering for other medical campuses. MetroHealth's move toward building a strong health care network isn't a novel approach, as the Cleveland Clinic, for one, has built a throng of new health centers throughout the region in recent years. But Mr.
Moran sees it as a necessary one. He insists that only providing care at the health system's aging main campus on West 25th Street in Cleveland isn't sustainable as a business model. More patients have migrated to outpatient settings, which often are more convenient and cheaper than the inpatient services MetroHealth Medical Center provides. "As we look forward, we expect to hold our share in this market, and this location in (Middleburg Heights) is clearly part of doing that," Mr. Moran said. "We will not hold our share staying where we are."
175 years, and counting
As it is, the county's safety-net hospital is losing tons of money as the volume of uncompensated care it provides is on track to total $130 million this year, up about $11 million from 2010. MetroHealth officials recently projected the health system would stomach heavy operating losses -- $6.3 million in 2011 and another
$21.1 million loss in 2012 -- if costcutting measures weren't taken. As a result, the health system announced this month it was laying off 104 employees and eliminating 151 vacant positions. It also will eliminate another 83 jobs over the next six months, in part through attrition. Despite the operating pressures it's experiencing, Mr. Moran maintains that MetroHealth can position itself for a sustainable future by creating the outpatient health centers. "In a sense, MetroHealth is in as good a position as it's ever been in its 175 years," he said. "It's our responsibility to look forward and say what the next 175 years are going to look like." Bill Ryan, president of the Center for Health Affairs, an advocacy group representing Cleveland-area hospitals, sees wisdom in MetroHealth's strategy to augment its patient base with more insured customers in order to offset the substantial charity care the system provides. "It's a strong model, and it's all
about creating a sense in the community about what you really do well," Mr. Ryan said. "It's like any other new venture. You have to really create a marketable distinction from the rest of the market." While Cuyahoga County officials have been particularly critical of MetroHealth's finances in recent months, they declined to comment on the system's outpatient strategy.
Hey, look at us!
While Mr. Moran admits the county's health care market is saturated, he expects the new Middleburg Heights medical center to break even within two years. Once operational in 2013, the site is expected to reach 60,000 patient visits in the first year and then as many as 113,000 annually. The new campus is expected to absorb the health system's small Strongsville office on Pearl Road, which MetroHealth's Dr. William Lewis said is "bursting at the seams." "I think we have to look at our own
system and what we're providing," said Dr. Lewis, chairman of the system's market development campaign. "There are large numbers of people who want to come to MetroHealth. They want an alternative and deserve choice." Since summer 2010, MetroHealth quietly has tweaked operations at its 16 smaller outpatient locations in order to boost patient volumes, and so far, the effort appears to be working. Patient visits have climbed between 10% and 17% at the sites since the changes were made, according to Phyllis Marino, the health system's vice president of market development. Ms. Marino said she expects MetroHealth's planned outpatient locations to be lucrative assets because of their urgent care centers. "With all our reputation for emergency care and emergency services and convenience these sites offer, that'll be a great draw and a large point for our marketing efforts," she said.
38
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39
THEINSIDER
THEWEEK
NOVEMBER 7 - 13
The big story: Ohioans voted overwhelmingly
last week to repeal Senate Bill 5, the Republicanbacked law that sharply curtailed the collective bargaining rights of public employees. The lopsided 61%-to-39% vote on the referendum known as Issue 2 was a victory for Democrats and organized labor in Ohio. The heads of regional chambers of commerce from across Ohio already were laying out plans to meet this week to map out a unified legislative strategy to present to members of the General Assembly on where to go from here. See story, Page One.
REPORTERS' NOTEBOOK
BEHIND THE NEWS WITH CRAIN'S WRITERS
Covering the earth, but not Penn State
Cleveland-based paint giant SherwinWilliams Co. took swift action last week, and it had nothing to do with new product development. The company's logo prior to this week adorned the backdrop banner used during Penn State's sports news conferences. But when news of a child sex abuse scandal involving former Penn State defensive coordinator Jerry Sandusky broke on Saturday, Nov. 5, SherwinWilliams spokesman Mike Conway said the company's Eastern Division, located in Newtown Square, Pa., acted quickly to remove the logo from the signage. "We did what any company would do in this case," Mr. Conway said. -- Joel Hammond
business," which has had a five-year run. "We wanted more of a value message," said Jenny Febbo, Team NEO's vice president of marketing and communications. Of the slogan it's replacing, she said, "It's a good message, but not very differentiating." The change is a reflection of economic research showing that between 2010 and 2015 manufacturing output in the 18 counties in the group's territory is expected to grow at a rate nearly 10 percentage points faster than manufacturing in the rest of the country. Ms. Febbo said this new catchphrase will remind site selectors of that prospect for growth and of the region's heritage in chemicals, rubber and plastics, as well as metal fabrication. -- Jay Miller
term that can be used inappropriately for an area on hockey goaltenders; and other topics that made even this young, hard-toembarrass reporter blush. It's a tried-and-true spoof tactic of such pioneers as Gary Dell'Abate, also known as "Baba Booey," from "The Howard Stern Show." After repeated requests for serious questions and admonishment for the nonreporters on the call, Indians representatives mercifully and finally cut off the call, and probably learned a lesson for the next one. -- Joel Hammond
My, that wasted time really does add up
Your average Joe and Jane say an hour of their time is worth about $21. Based on that figure, the people who responded to a report commissioned by TOA Technologies Inc. of Beachwood lose an average of $243 each year waiting at home for the cable guy, the plumber or somebody else to show up for an appointment. Multiply that annual figure by the size of the U.S. labor force and you've got $37.7 billion in lost economic value, according to the report, which was based on an online IBOPE Zogby survey of more than 1,000 U.S. adults. So, what's the solution? Why, it just so happens that TOA Technologies sells software designed to help companies give customers a better estimate as to when that cable guy or that plumber will show up. Good. Now that that's taken care of, you can start thinking of ways to spend your extra cash. I plan to use mine as a pillow. -- Chuck Soder
United lands downtown:
The Greater Cleveland Partnership said United Airlines plans to locate its Great Lakes regional sales office in GCP's new PlayhouseSquare office building at 1240 Huron Road in downtown Cleveland. GCP did not disclose terms of the lease arrangement with United. However, the city's chamber of commerce group has made retaining a United hub operation at Cleveland Hopkins International Airport a key priority following the merger of United and Continental Airlines, which has had a hub at Hopkins for nearly two decades.
Prank callers achieve their goal in hockey call
With public ticket sales for January's "Frozen Diamond Faceoff" -- the outdoor hockey game at Progressive Field pitting Ohio State against Michigan -- beginning today, Nov. 14, the Indians set up a conference call last Wednesday with Michigan coach Red Berenson and Ohio State coach Mark Osiecki to drum up a little interest. Except the call didn't go quite as planned. After a question asking for Mr. Berenson's general thoughts on outdoor hockey and my question about these games' effect on recruiting -- hit my blog at www.Crains Cleveland.com/section/blogs04 for those details -- awkwardness ensued. The next questions involved references to Jerry Sandusky, the disgraced former Penn State coach accused of molesting adolescent boys; a
Say it loud -- we make things, and we're proud
After decades of taking the blame for the decline of the Midwest, manufacturing is suddenly a bright spot. So much so, in fact, that the sector's sudden revival is the theme of Team Northeast Ohio's new tagline. Soon, "We make things here" will start showing up on brochures, slideshows and on the website of the business attraction nonprofit. It replaces, "It all adds up for
Parts-hunting: TransDigm Group Inc. entered into a definitive agreement to acquire Harco Laboratories Inc. for about $84 million in cash. Harco, based in Branford, Conn., makes proprietary components for commercial aircraft made by Boeing, Airbus and Embraer. The parts include thermocouples, sensors and engine cable assemblies and are found on engines made by Pratt & Whitney, Rolls-Royce, International Aero Engines and Honeywell. TransDigm, itself a supplier of aircraft parts, put Harco's revenue in fiscal 2011 at $37 million. Charity case: Ohio Grantmakers Forum, an
association of foundations and other grantmaking organizations, has come out in opposition to efforts by the Obama administration to cap the charitable deduction at 28%. The grantmakers group said the proposed decrease of seven percentage points in the deduction "would bring about dramatic drops in charitable giving at the very moment when such gifts are desperately needed in communities all across our state."
MILESTONES
COMPANY: GrafTech International Ltd., Parma THE OCCASION: Its 125th anniversary
Looking back, it's apparent that 1886 was quite a significant year. It was the year a new product named Coca-Cola was patented, the Statue of Liberty was dedicated and a business known as The National Carbon Co. was founded in Cleveland. National Carbon started as a maker of arc carbons for lighting, but by 1900 had made significant innovations in the production of dry cell batteries, Shular dynamo and motor brushes, and graphite electrodes for the steel industry. Today, 125 years later, producing those electrodes is still a big part of the business of GrafTech International Ltd., the global company based in Parma that began life as National Carbon. Chairman and CEO Craig Shular said GrafTech has achieved its longevity through teamwork and innovation, and "must grow strategically to ensure we're around for another 125" years. To that end, GrafTech said it's leveraging its material science knowledge and industrial manufacturing expertise to create new products. Among them is its eGraf SpreaderShield SS1500 flexible graphite heat spreader, which GrafTech describes as the "highest thermal conductivity material commercially available" for use in lighting and advanced electronics, such as smart phones. GrafTech operates 16 manufacturing plants -- including the plant National Carbon opened in Lakewood in 1894 -- and employs about 3,000 workers on four continents.
BEST OF THE BLOGS
Excerpts from recent blog entries on CrainsCleveland.com.
States take their shots at privatizing liquor business
Ohio is getting plenty of company as states loosen the grip they've held on alcohol sales. "Lawmakers in Utah, where even highalcohol beer is sold through state liquor stores, were urged by an advisory panel this year to put the business in private hands," Bloomberg reported. "Pennsylvania, Virginia and North Carolina have considered privatizing state liquor outlets." In Washington state, voters weighed in on a ballot measure backed by Costco Wholesale Corp. to end state control of liquor retailing. Mark Filippell, a managing director at Cleveland investment bank Western Reserve Partners LLC, which recommended in a January report that Ohio privatize its liquor business, told Bloomberg, "This is something the government shouldn't even be in. Why isn't the state in the milk distribution business? Why isn't the state in gasoline distribution? What about baby food?" Bloomberg noted that many of the proposals nationwide "involve making alcohol more widely available, increasing licensing fees and tax revenue." Logical enough. But Michael Scippa, a spokesman for Alcohol Justice, an industry monitor based in San Rafael, Calif., told Bloomberg that any gains to states may be wiped out by other costs, from car accidents to domestic violence. "Increased availability increases overconsumption, which increases alcohol-related harm," he said.
Jack hits the road: Strayer Education Inc., a large, Virginia-based for-profit college operator, announced it had acquired the Jack Welch Management Institute, an online master's degree program that had been part of Chancellor University in Seven Hills. The management institute, founded by former General Electric CEO Jack Welch in 2009, was the centerpiece academic program at for-profit Chancellor. In a news release issued by Strayer, Mr. Welch said his vision always has been to build the institute into the No. 1 online business school in the world, and that bringing the institute to Strayer "provides the educational foundation to achieve this vision." Chancellor officials in the past had maintained that the institute was a key part of the college's growth strategy. This and that: Specialty chemicals maker Lubrizol Corp. agreed to buy Chemtool Inc. of Rockton, Ill., a producer of custom-formulated greases. ... The Karcher Group, a web design, development and marketing firm based in North Canton, acquired SitesNow, a web design, development and data services company in Cleveland. Karcher Group said the acquisition expands its geographic reach and market share in Northeast Ohio "while providing greater depth of data services for its clients."
Northeast Ohio is the excellence of the region's public libraries, and new rankings from Library Journal reinforce this idea. The publication's Index of Public Library Service ranks more than 7,000 library systems in four categories: library visits, circulation, program attendance and public Internet usage. It combines rankings from those categories into an overall score. Libraries are broken into nine budget categories. In the largest budget category, $30 million-plus, the Cuyahoga County Public Library is rated as the best library in the country, while the Cleveland Public Library is No. 4 nationwide. Other top-10 libraries in their budget categories are the Stark County District Library in Canton; the Shaker Heights Public Library; the Cleveland Heights-University Heights Public Library; and the Lakewood Public Library. There are several other libraries in Northeast Ohio that are in the top 20 in their budget categories.
You want to go where everybody knows your name
A crowdsourced project by Planetizen.com set out to find the 100 best public spaces in the United States and Canada, and it turns out that two of the top 19 are in Cleveland. At No. 11 is Star Plaza in downtown's theater district, while the West Side Market ranked No. 19. Another northern Ohio space, the coollooking Richland Carrousel Park in Mansfield, was No. 29. Planetizen.com said that in evaluating thousands of public spaces, it found the most successful ones have four key qualities: "they are accessible; people are engaged in activities there; the space is comfortable and has a good image; and finally, it is a sociable place, one where people meet each other and take people when they come to visit."
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* Calculated from the vehicle's original in-service date and zero miles. ** Rates shown only for well qualified buyers up to 60 months. Retailer determines actual vehicle price. For special fi nance terms, take new vehicle delivery from retailer stock by 11/30/2011. See your Land Rover Retailer or call 800-FIND-4WD for qualifi cations and complete details.
CLEVELAND
* For well-qualified buyers as determined by approved lender. Dealer determines price. Residency restrictions apply. See your participating dealer for qualifications and complete details. Visit JAGUARUSA.COM or call 1.800.4JAGUAR. 0.0% APR for 36 months at $XX.XX per month per &1,000 financed regardless of the amount of down payment. $X,XXX down payment required. Taxes, title, license fees due at signing. Take new retail delivery from dealer stock by 11/30/11. Available only at participating Jaguar dealerships and through approved lenders on 2012 Jaguar XJ. Jaguar or approved lender may rescind or amend this offer without notice. � 2011 JAGUAR LAND ROVER NORTH AMERICA, LLC.
6135 Kruse Dr. � Solon � (440) 542-0600 � www.DavisAutomotive.com